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Dow Inc. CFO on earnings: ‘Demand has been resilient’ amid pandemic

Shares of Dow Inc. climbed after the American chemical company posted its Q1 earnings report. Dow Inc. CFO Howard Ungerleider joins Yahoo Finance Live to break down the company’s latest financial results.

Video transcript

JULIE HYMAN: Another of the companies out with earnings is Dow, the material sciences company, formerly Dow Chemical, of course. Sales there up about 21 and 1/2% and rising in all segments. And it's so fascinating. We've been talking about cost increase pressures across all kinds of different industries. We were just talking about it with Jack Hartung of Chipotle.

Here, too, at Dow, we see rising costs and then rising prices as well. Howard Ungerleider, the CFO at Dow is with us now. Howard, thank you so much for being here. I want to begin with those price increases which you saw, as you guys put it in the statement, local price increases.

And sorry, our Julia La Roche is here with us as well. So Howard, how are you looking at the-- the cost to price structure right now? And we're all looking for signs of inflation. How persistent do you think some of these moves are going to be?

HOWARD UNGERLEIDER: Hi, Julie, Julia. Good morning to both of you. Nice to be with you. And yeah, well, look, we had a great quarter, price gains in every segment, in every business, in every region they were up both year-on-year and quarter-on-quarter. I mean, fundamentally, a big part of the reason why was demand. Demand has been resilient. We've seen good demand really in many of our chains, certainly packaging demand was resilient throughout the pandemic.

We have seen in the back half of last year and again in the first quarter growth in construction activity, in mobility, in electronics, and really broad based and consumer durables. And that combination of strong demand and plus obviously Winter Storm Uri, which significantly impacted the entire industry on the US Gulf Coast, was also reducing-- reducing supply. So when you think about this year, it really is-- you know, it's only the first quarter, but it really is shaping up to be potentially a 13-month year of demand growth, but really only an 11 month year of supply because of Winter Storm Uri.

JULIA LA ROCHE: Howard, it's Julia La Roche. And let's talk about that recovery. You just mentioned a number of areas. Obviously packaging was resilient, but you mentioned construction, mobility, electronics, consumer, all of those coming back.

Talk to us about the recovery. And are you seeing these customers of yours act now because they want to get better pricing? Or is this just because they are seeing a lot of demand for their various goods? Walk us through that recovery and what is kind of pulling that.

HOWARD UNGERLEIDER: Yeah, Julia, I mean, I think what we saw was anything that touched the consumer once we got past the second quarter of last year, which was obviously the lowest quarter related to the pandemic, certainly in North America and Europe, we really saw a big snapback demand. Consumer durables, anything touching the consumer has been very, very strong. We really have seen mobility continue to expand into the end of last year. It ended the year very strong and that continued.

Consumer electronics, also DIY, so anything Do It Yourself in the home has been very, very strong. And look, as the economies continue to open, I would say we certainly expect over the next several quarters continued expansion in industrial activity, as well as expansion in the service sectors as we all get out and about from our homes and begin to travel and begin to experience more group activities, which obviously most of us have not been doing for better part of a year.

JULIE HYMAN: Howard, if you continue to expect that expansion in those various industries, expansion in demand as well but not necessarily the same types of crimps on supply that were caused by the storm, for example, what does all of that mean for your margins? I've seen some analyst commentary that generally for the plastics industry we may have seen peak margins. Do you do you think that's the case for doubt?

HOWARD UNGERLEIDER: I don't think so. I mean, certainly you have to separate Winter Storm Uri from the fundamental underlying demand. So if you just go back to January before Winter Storm Uri, in most of our chains, we were operating between the high 80% asset utilization and the low 90s, where you typically have pretty strong pricing power. Now, obviously, the entire state of Texas being out for the whole industry for between four and six weeks further exacerbated that.

And a typical hurricane, it'll take about three months to get back to a more normalized supply-demand pattern. But-- but a hurricane, as you know, only impacts a certain part of the geography. This Winter Storm Uri impacted the entire state of Texas and demand was out-- supply was out for between four and six weeks, as I mentioned. So it'll take probably at least six months to get back to a more normalized demand pattern.

And really, Julie, to answer your question, it really depends on what happens to fundamental underlying demand as the economies reopen. If you're a believer that the vaccine rollout continues and that people get out and start traveling again and you start to get fundamental underlying construction activity, even redounding service activity rebounding around the world, then that will more than compensate for the additional supply once people get back to-- from Winter Storm Uri. And you could be seeing a decent economic growth for the next several years.

JULIA LA ROCHE: Mm-hmm. And Howard, I should mention it is Earth Day, so we are talking about sustainability. And of-- obviously we were having a conversation around plastics and packaging. I did hear on the earnings call about sustainability being a growth driver for you all and making some investments within plastics as it relates to recycling. Talk to us about that. What is the growth potential for you all? And where are you seeing that-- that demand come from for your business?

HOWARD UNGERLEIDER: Yeah, Julia. Well, Happy Earth Day to you and all of your listeners as well. Yeah, look, sustainability has been a key growth driver for us for a long time. And we are in our third decade of 10-year sustainability goals. We-- we put out some pretty robust goals in addition to that last year in terms of stopping the waste, so taking a million metric tons out of the environment and recycling and reusing that material and then-- and then closing the loop, really driving a true plastic circularity economy around the world.

One of the announcements that you're probably referring to that we announced today is our partnership with Mura. This is an advanced recycling technology where we're making a small investment and looking to take that material. So it's basically what they do is they take old plastics and instead of landfilling them, they take them back. They break them down into their building blocks. And then we'll be able to use those building blocks as monomers to make brand new polymers for our customers and our value chains.

And you know, we're doing a lot. We've got mechanical recycling products now in every geography around the world. We're working with Fuenix Group to also do advanced recycling. We're working with a company in Europe called UPM for tall oil to essentially take pulp product and turn it into naphtha feedstocks. And now this Mura activity.

So whether it's mechanical recycling or advanced recycling, we see a significant amount of demand growth for those technologies. And we're working with our customers and we're working with our value chain partners. So we work with-- recently, we worked with Kellogg with their Kashi Bare Naked Granola to create a 100% recyclable package. We've done the same in Europe with Reckitt Benckiser in their Finish dishwashing detergent. We walk with-- we work with people in China, as well as Latin America as well.

JULIE HYMAN: Yeah, obviously an urgent imperative for a lot of companies right now. Howard, thanks for being here. Julia, thanks for bringing us the interview. Howard Ungerleider is the CFO at Dow. Appreciate it.