Dow to face margin pressure in Q1 with no help from macros – execs
Joseph Chang
30-Jan-2025
NEW YORK (ICIS)–Dow expects to face sales and margin pressures in Q1 2025 with no improvement in the macro outlook following a difficult Q4, senior executives said.
Dow expects Q1 earnings before interest, tax, depreciation and amortization (EBITDA) of around $1 billion – down $200 million from Q4 – on higher feedstock and energy costs, and higher maintenance activity.
On the top line, sales in Q1 are expected to be down 2-4% versus Q4 in Packaging and Specialty Plastics (P&SP), down 2-4% in Industrial Intermediates & Infrastructure (II&I) but up 3-7% in Performance Materials & Coatings (PM&C).
Overall Dow sales are expected to decline in Q1 versus Q4 as the declines in the first two segments outweigh the positive impact expected in the third – an unusual occurrence as Q4 is seasonally the weakest period.
Q1 guidance does not include any impact from the January winter storm in the US Gulf Coast as Dow’s sites managed well through the event.
The 2025 outlook also appears challenging.
“While global GDP [in 2025] is expected to grow at similar levels to 2024, recent economic activity is primarily being led by strength in service-related sectors,” said Jeff Tate, Dow CFO, on the company’s Q4 earnings call.
“Ongoing affordability challenges also continue to pressure spending in housing and durable goods sectors. These dynamics have created a two-speed economy,” he added.
Dow is also monitoring any impacts from ongoing geopolitical volatility, including potential tariffs, he noted.
Q4 RESULTS DOWN
Dow’s Q4 2024 sales were down 2% year on year
to $10.4 billion with volumes up 1% and local
price down 3%. Operating earnings before
interest and tax (EBIT) fell 19% to $454
million.
“We’ve shown five consecutive quarters of [year-on-year] volume growth so we’re still going to take advantage of our low cost position and get our share, but pricing power is the real question,” said Dow CEO Jim Fitterling.
On the positive side, ethylene chain – Packaging and Specialty Plastics (P&SP) and ethylene oxide (EO) and derivatives – demand continues to be strong, he said.
NEW $1 BILLION
RESTRUCTURING
Underlying the overall difficult outlook for
2025, Dow is taking further actions to cut
costs by $1 billion, including the elimination
of 1,500 jobs.
Capital spending (capex) will also be reduced by $300-500 million from prior guidance of $3.5 billion.
The company also plans to idle a cracker in Terneuzen, the Netherlands, in Q2 until market conditions improve, and will provide an update on its European asset footprint review which focuses on polyurethanes (PU) by mid-2025.
Any cost reductions from the European asset review will be in addition to the $1 billion in cost cuts just announced, said Fitterling.
HOUSING AND AUTO MACROS PRESSURE
PU
Dow’s PU and construction chemicals businesses
will remain under pressure in Q1 on housing
headwinds.
“We’re not really seeing any signs of demand recovery despite the interest rate cuts in the US and Europe,” said Dow chief operating officer (COO) Karen Carter, who noted end markets being impacted such as bedding and furniture, along with housing itself.
“If you think about US home affordability, it remains at historic lows with [mortgage] rates above 7%. We also saw in Q4 automotive start to slow,” she added, noting that US auto inventories are at 10-year highs.
In 2024, global automotive production started strong and ramped up through mid-year and then slowed on inventory pull-downs, said Fitterling.
“You could see something similar this year where automotive starts strong again. We just have to keep an eye on what happens to inventories and demand,” he said.
Focus article by Joseph Chang
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