Dow cuts revenue outlook, citing 'fouling' at a Texas ethylene plant

By Tomi Kilgore

Dow sees softer demand in mobility materializing 'across all regions,' but consumer electronics demand is steady

Shares of Dow Inc. fell to fresh lows for the year on Thursday, after the materials-science company issued a revenue warning, citing higher costs and a "significant" issue at an ethylene plant.

The stock (DOW) dropped 1.2% in afternoon trading, to put it on track for the lowest close since Nov. 13, 2023.

The company said it now expects third-quarter revenue of about $10.6 billion, down from previous guidance of about $11.1 billion. That current FactSet revenue consensus is $11.0 billion.

"The updated third quarter outlook is largely driven by a significant unplanned event that occurred in late July at one of our ethylene crackers in Texas," Fitterling said. "In addition, we are currently experiencing higher input costs and margin compression in Europe."

In a "fireside chat" at the Morgan Stanley Laguna Conference, Fitterling said that the event was on Dow's Texas 8-cracker, that led to a combination of lost production and increased costs. He said the issue is that "there is some fouling in the quench tower," leading to reduced rates.

"And then on the startup to ramp the rates back up, we experienced some fouling problems, so we had to take it down and clean it," Fitterling said, according to a FactSet transcript. "The good news is no big mechanical problems, just cleaning out the back end."

He said the cracker was on track to be started up before the end of the month.

For the third quarter, Dow also said it expects operating earnings before interest, taxes, depreciation and amortization (Ebitda) of $1.3 billion, while the FactSet consensus for adjusted Ebitda is $1.48 billion.

On a brighter note, he said that, in North America, pricing and feedstock costs in packaging and specialty plastics are improving.

Meanwhile, because ethylene has wide industrial uses, such as in the making of plastic, and Dow also produces other performance materials coatings, Dow provided some insight into the health of many different markets.

Fitterling said demand for infrastructure, which for Dow includes the residential construction market, "remains soft across our regions," due primarily to historically high interest rates.

While consumer demand for consumer electronics and home and personal care applications is "steady," tighter consumer budgets has led to delays in spending on non-essential durable goods.

"And in mobility, we're beginning to see softer demand materialize across all regions following solid growth in the first half of the year, which was driven by pent up demand," Fitterling said.

The stock has dropped 8.6% year to date, while the Materials Select Sector SPDR ETF XLB has gained 6.9% and the S&P 500 index has advanced 17.1%.

-Tomi Kilgore

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09-12-24 1321ET

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