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Dow Inc (NYSE:DOW) shares tumbled 7.34% in premarket trading to $28.14 after the company’s Q2 2025 earnings presentation revealed a 50% dividend reduction and continued pressure across most business segments amid what executives described as a "prolonged downcycle."
Introduction & Market Context
The chemical giant reported net sales of $10.1 billion and operating EBITDA of $703 million for the second quarter, reflecting weak macroeconomic conditions across global markets. This represents a significant decline from the first quarter’s EBITDA of $944 million, indicating deteriorating conditions in the chemical industry.
"This is one of the most protracted down cycles in decades," CEO Jim Fitterling had noted during the Q1 earnings call, and the Q2 presentation suggests these challenging conditions have intensified, necessitating more aggressive actions to preserve financial flexibility.
Quarterly Performance Highlights
Dow’s three main business segments showed mixed results, with most experiencing year-over-year and sequential declines:
The Packaging (NYSE:PKG) & Specialty Plastics segment, Dow’s largest business unit, reported sales of $5.025 billion, down 9% year-over-year and 5% quarter-over-quarter. More concerning was the collapse in operating EBIT to just $71 million, representing a 90% decline from $703 million in Q2 2024, with margins shrinking to just 1.4% from 12.7% a year ago.
The Industrial Intermediates & Infrastructure segment continued to struggle, with sales declining 6% year-over-year to $2.786 billion. The segment reported an operating EBIT loss of $185 million, worsening from a $7 million profit a year ago and a $128 million loss in Q1 2025. Margins deteriorated to -6.6%, with management citing lower prices and higher planned maintenance activity as key factors.
The Performance Materials & Coatings segment provided the only bright spot, with operating EBIT increasing to $152 million from $146 million a year ago and $49 million in Q1. While sales declined 5% year-over-year to $2.129 billion, margins expanded to 7.1% from 6.5% a year ago, driven by lower input costs and seasonal improvements.
Strategic Initiatives
In response to these challenging conditions, Dow announced several significant actions to improve financial flexibility and operational performance:
The company is reducing its dividend by 50%, a move that management described as "right-sizing" to ensure Dow’s ability to maximize shareholder value. Even after this reduction, Dow notes its yield remains competitive at approximately 5%, compared to 2.5% for S&P Chemicals and 1.5% for the S&P 500.
Dow is also implementing structural changes to its global asset footprint, including shutting down three upstream assets in Europe that are facing structural challenges. These shutdowns are expected to result in an operating EBITDA uplift of approximately $200 million and annual CapEx avoidance of around $60 million.
The company has received approximately $2.4 billion in cash proceeds from a strategic infrastructure partnership, with potential for an additional $600 million in the second half of 2025. Dow also expects to receive approximately $1.2 billion from NOVA litigation in the second half of the year and has announced two divestitures totaling around $250 million.
As shown in the following chart of Dow’s near-term financial levers, these actions collectively provide over $6 billion in financial flexibility:
Cost reduction efforts have been accelerated, with in-year savings now expected to reach approximately $400 million, as part of a broader $1 billion cost reduction program. Additionally, 2025 capital expenditures have been reduced to approximately $2.5 billion, about $1 billion lower than original plans.
Forward-Looking Statements
Looking ahead to the third quarter, Dow expects modest sequential improvement with projected net sales of approximately $10.2 billion. The company provided the following guidance for Q3:
Management indicated that the challenging environment is expected to persist across most regions and end markets. The outlook matrix shows particular weakness in European markets across multiple sectors, while North American markets show relatively better performance:
Financial Analysis
Dow’s presentation reveals a company taking decisive action amid deteriorating industry conditions. The 50% dividend cut represents a significant shift in capital allocation strategy and underscores the severity of the current downturn. With a pre-cut dividend yield of nearly 10%, the market had been signaling concerns about dividend sustainability.
The company’s focus on cash preservation and operational efficiency is evident in its aggressive cost-cutting measures and asset rationalization. By shutting down structurally challenged assets in Europe while continuing to invest in cost-advantaged regions like the Americas, Dow is attempting to position itself for stronger performance when market conditions eventually improve.
The $2.4 billion cash infusion from the strategic infrastructure partnership provides important financial flexibility during this challenging period. Combined with expected litigation proceeds and divestitures, these actions should help Dow weather the current downturn while maintaining its investment-grade credit profile.
Despite these efforts, the significant premarket stock decline suggests investors remain concerned about the depth and duration of the industry downturn. With operating EBIT margins in negative territory for the Industrial Intermediates & Infrastructure segment and barely positive for Packaging & Specialty Plastics, Dow faces substantial challenges in restoring profitability to historical levels.
As shown in the company’s investment thesis slide, management is emphasizing operational discipline, execution improvements, and positioning for future growth as key reasons to remain invested in Dow:
However, with the stock trading near its 52-week low of $25.06 even before today’s decline, market sentiment clearly remains cautious about the company’s near-term prospects despite these strategic initiatives.
Full presentation:
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