Executive Summary / Key Takeaways

• Dow Inc. is undergoing a significant strategic recalibration, optimizing its global asset footprint and cost structure to enhance resilience and profitability in a prolonged industry downturn.
• The company is leveraging its cost-advantaged assets and differentiated technology, particularly in North America, to drive growth in high-value end markets like packaging, electronics, and home care.
• Recent financial performance shows sequential improvement in earnings and cash flow, driven by aggressive cost reduction initiatives and the ramp-up of new, integrated production units.
• A 50% dividend reduction and substantial asset divestitures, including the $3 billion Diamond Infrastructure Solutions partnership, underscore a disciplined capital allocation strategy focused on financial flexibility and long-term shareholder value.
• Despite persistent macroeconomic uncertainties, industry oversupply, and geopolitical risks, Dow is actively addressing competitive pressures through asset rationalization and engagement on fair trade policies, positioning itself for a robust recovery.

Dow's Strategic Recalibration: Unleashing Value Amidst Cyclical Headwinds

Dow Inc., a global materials science leader founded in 1897, stands at a pivotal juncture, strategically transforming its operations to navigate a challenging global chemical market. The company's core business spans essential applications in packaging, infrastructure, mobility, and consumer sectors, underpinned by a long history of consistent shareholder returns, including 457 consecutive dividends paid since 1912. The current industry landscape is characterized by a prolonged downturn, marked by oversupply, geopolitical uncertainties, and volatile trade policies, which have collectively strained profitability across the sector. In response, Dow has embarked on an overarching strategy focused on operational discipline, aggressive cost reduction, targeted asset optimization, and strategic growth investments, all designed to fortify its foundational strengths: global breadth, asset integration, scale, and feedstock flexibility.

Dow's historical journey has profoundly shaped its current strategic responses. Recent years have seen a deliberate reshaping of its portfolio, including the sale of its flexible packaging laminating adhesive business in Q4 2024 for approximately $150 million and the divestiture of its 50% ownership in the DowAksa joint venture in August 2025 for $121 million. These actions reflect a "best owner mindset," streamlining the portfolio to focus on core, high-value businesses. A significant move was the strategic partnership with Macquarie Asset Management, which saw Dow sell a minority stake in select U.S. Gulf Coast infrastructure assets, forming Diamond Infrastructure Solutions. This partnership generated approximately $3 billion in total proceeds by Q3 2025, providing substantial financial flexibility.

Technological Edge and Innovation Propelling Future Growth

Dow's competitive edge is significantly bolstered by its differentiated technology and innovation pipeline. The company leverages proprietary solution technology for its polyethylene production, exemplified by the Poly-7 world-scale polyethylene train in Freeport, Texas, which became fully operational in Q2 2025. This technology offers tangible benefits, including lower production costs, increased capacity, enhanced efficiency, and greater flexibility. Critically, Poly-7 absorbs Dow's remaining ethylene length in the U.S. Gulf Coast, maximizing integrated margins and enabling the production of higher-value functional polymers at other assets. Similarly, a new alkoxylation unit in Seadrift, Texas, also commissioned in Q2 2025, serves high-value end markets such as home care, pharma, and energy, delivering margins in excess of 1,000 basis points higher than monoethylene glycol (MEG). These two growth assets are expected to contribute an annualized $100 million to $200 million in earnings.

Beyond current operations, Dow's R&D initiatives are focused on long-term, sustainable solutions. The Path2Zero project in Fort Saskatchewan, Alberta, Canada, aims to be the world's first net-zero Scope 1 and 2 carbon dioxide equivalent emissions integrated ethylene and derivatives complex. While its construction has been delayed due to market conditions, the project underscores Dow's commitment to a low-carbon future and its ability to offer unique, sustainable products to brand owners. Furthermore, the company is expanding its downstream silicones capacity, targeting high-value applications in attractive end markets like electronics, mobility, and consumer goods, which are expected to grow above GDP. These technological advancements are crucial to Dow's competitive moat, driving higher average selling prices, lower manufacturing costs, and improved margins, thereby strengthening its market positioning and long-term growth strategy.

Strategic Transformation and Asset Optimization

Dow's strategic transformation is deeply rooted in optimizing its asset base and cost structure. The company initiated a 2025 Restructuring Program, targeting at least $1 billion in annualized cost reductions by 2026, including the elimination of approximately 1,500 roles globally. These actions are primarily focused on reducing third-party purchased services and contract labor, aiming for permanent structural cost improvements.

In Europe, where downstream demand remains significantly below pre-COVID levels and energy costs challenge competitiveness, Dow is undertaking substantial asset rationalization. The company announced the planned shutdown of an ethylene cracker in Böhlen, Germany, chlor-alkali and vinyl assets in Schkopau, Germany (both by end-2027), and a basics siloxanes plant in Barry, United Kingdom (by mid-2026). These shutdowns are expected to be cash-accretive, resulting in an annual EBITDA uplift of $200 million by 2029, with half of the benefits realized by the end of 2027. These actions aim to right-size regional capacity, reduce exposure to merchant sales, and remove higher-cost, energy-intensive assets from its portfolio.

The decision to delay the Path2Zero project in Alberta, Canada, reducing 2025 capital expenditures by $1 billion to approximately $2.5 billion, reflects a pragmatic response to the "lower for longer earnings environment." This delay ensures that the project's timing aligns with market recovery and that returns remain above the cost of capital. Despite the delay, the project remains a long-term strategic imperative, positioned in a cost-advantaged region with access to low-cost ethane.

Financial Performance and Liquidity in a Challenging Environment

Dow's recent financial performance reflects the ongoing industry headwinds but also the early benefits of its strategic actions. In the third quarter of 2025, net sales were $10.0 billion, an 8% decrease year-over-year, with declines across all operating segments. Net income available for common stockholders was income of $62 million, or $0.08 per share, compared with income of $214 million, or $0.30 per share, in the third quarter of 2024. For the first nine months of 2025, the company reported a net loss of $1,080 million, or $1.53 per share, compared to income of $1,169 million, or $1.65 per share, in the prior year period.

Despite these year-over-year declines, Dow demonstrated sequential earnings and cash flow improvement in Q3 2025. Cash provided by operating activities increased by $1.6 billion sequentially, primarily driven by working capital improvements and advance payments from long-term supply agreements. The company ended Q3 2025 with a robust cash and cash equivalents balance of over $4.5 billion and an additional $10 billion in available liquidity, including a revolving credit facility renewed through 2030.

A significant move to bolster financial flexibility was the 50% reduction in the quarterly dividend, announced in July 2025, bringing the payout to $0.35 per share. This decision, while impactful for shareholders, was deemed a prudent measure to maintain financial flexibility and maximize long-term value amidst the prolonged downturn. Dow maintains a target of competitive shareholder returns of approximately 65% of Operating Net Income over the economic cycle. The company's balance sheet remains solid, with no substantive long-term debt maturities due until 2029.

Competitive Landscape and Market Positioning

Dow operates in a highly competitive global chemicals industry, facing rivals such as LyondellBasell (LYB), DuPont (DD), BASF SE (BASFY), and Eastman Chemical Company (EMN). Dow's competitive advantages are rooted in its global scale, strategically integrated asset footprint, and unique feedstock flexibility. Over 75% of its global cracking capacity is in a top-quartile cost position, a figure expected to rise to approximately 80% with planned asset rationalizations. This cost leadership, particularly in the Americas with access to advantaged natural gas liquids, provides a significant buffer against volatile feedstock prices and allows Dow to maintain competitive pricing.

While competitors like DuPont and BASF may lead in certain specialized innovation niches, Dow's broad product range and integrated value chains offer comprehensive solutions across its market verticals. For instance, its North American volume is over 95% USMCA compliant, providing an advantage in mitigating tariff impacts. The company is actively addressing industry oversupply, which has been exacerbated by new market entrants exporting products at anti-competitive economics. Dow has engaged with governments globally, leading to actions such as preliminary anti-dumping findings against Chinese MDI producers in the U.S. (where Chinese imports account for about 20% of the market) and polyols in Brazil. These efforts aim to ensure a fair trade environment and protect local production.

The industry is currently experiencing significant capacity rationalization, with approximately 9,300 kilotons of global ethylene capacity either announced or confirmed for closure, including 4,400 kilotons in Europe, the Middle East, and Africa, and 4,900 kilotons in Asia Pacific. This rationalization, coupled with anticipated polyethylene demand growth above GDP, is expected to improve operating rates and pricing power as the market recovers.

Outlook and Risks

Dow anticipates fourth-quarter 2025 EBITDA to be approximately $725 million. This outlook reflects sequential tailwinds from cost reduction actions and lower planned maintenance, but these benefits are expected to be offset by normal seasonality in building and construction markets and margin compression due to higher feedstock costs. The Packaging and Specialty Plastics segment expects a $25 million tailwind from lower planned maintenance and another $25 million from cost reductions, though higher feedstock and energy costs are projected to result in a $0.01 per pound global margin contraction. A fire at a polyethylene unit in Texas is expected to have a $25 million unfavorable impact in Q4 2025.

For 2026, capital expenditures are expected to remain around $2.5 billion, including approximately $1 billion for maintenance. Management will continue to monitor market conditions for the Path2Zero project, with a decision on construction timing expected in January 2026. While polyethylene demand has remained stable, particularly in flexible packaging, a broader market recovery is contingent on improved business investment and consumer spending, with U.S. mortgage rates needing to fall further into the "5 handle" range to spur a significant rebound in construction.

Key risks include ongoing geopolitical uncertainties, the potential for new tariffs or retaliatory trade actions, and continued volatility in commodity prices. Dow also faces litigation risks, including a securities class action lawsuit filed in August 2025, and environmental liabilities related to its operations. The company continuously monitors factors that could impact the fair value of its reporting units, including macroeconomic conditions and industry trends, which could lead to future goodwill impairment charges.

Conclusion

Dow Inc. is executing a comprehensive strategic transformation, recalibrating its operations and capital structure to navigate a challenging global chemical market. By aggressively reducing costs, optimizing its asset footprint through targeted rationalizations in high-cost regions, and investing in cost-advantaged, innovative production in the Americas, Dow is fortifying its competitive position. The company's disciplined approach to capital allocation, including a significant dividend adjustment and strategic asset divestitures, underscores its commitment to financial flexibility and long-term value creation. While persistent macroeconomic headwinds, industry oversupply, and geopolitical uncertainties present ongoing risks, Dow's focus on operational excellence, technological differentiation, and proactive engagement on fair trade policies positions it to emerge stronger when market conditions ultimately recover. Investors should recognize Dow's resilience and strategic foresight as key drivers for future profitability and sustained shareholder returns.