Dow Inc. 2022 Form 10-K Summary
Business context and reporting period
Dow Inc. and The Dow Chemical Company filed a combined Form 10-K for the fiscal year ended December 31, 2022. The filing is annual rather than a standalone fourth-quarter filing, although it includes fourth-quarter and year-end items. Dow is a global materials science company operating 104 manufacturing sites in 31 countries with approximately 37,800 employees. Its reportable segments are Packaging & Specialty Plastics, Industrial Intermediates & Infrastructure, and Performance Materials & Coatings.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Net sales | $56.902 billion | $54.968 billion |
| Net income | $4.640 billion | $6.405 billion |
| Net income available to Dow Inc. common stockholders | $4.582 billion | $6.311 billion |
| Diluted EPS | $6.28 | $8.38 |
| Income before income taxes | $6.090 billion | $8.145 billion |
| Effective tax rate | 23.8% | 21.4% |
| Cash from operating activities, continuing operations | $7.486 billion | $7.069 billion |
| Free cash flow | $5.663 billion | $5.568 billion |
| Capital expenditures | $1.823 billion | $1.501 billion |
| Cash and cash equivalents | $3.886 billion | $2.988 billion |
| Gross debt | $15.422 billion | $14.672 billion |
| Net debt | $10.597 billion | $11.439 billion |
Cost of sales increased to $48.338 billion from $44.191 billion, and cost of sales as a percentage of net sales increased to 84.9% from 80.4%. Operating EBIT was $6.590 billion, compared with $9.533 billion in 2021. Cash flow conversion improved to 80.1% from 57.1%, partly because 2021 included a $1 billion elective pension contribution.
Segment performance
| Segment | 2022 sales | Year-over-year sales change | 2022 Operating EBIT | Change in Operating EBIT |
|---|---|---|---|---|
| Packaging & Specialty Plastics | $29.260 billion | +4% | $4.110 billion | Down $2.528 billion |
| Industrial Intermediates & Infrastructure | $16.606 billion | -1% | $1.418 billion | Down $864 million |
| Performance Materials & Coatings | $10.764 billion | +11% | $1.328 billion | Up $462 million |
| Corporate | $272 million | Down from $317 million | $(266) million | Down from $(253) million |
Material changes versus the prior comparable period
- Sales increased 4%, driven by an 11% increase in local price and product mix, partly offset by a 3% volume decline and a 4% unfavorable currency impact.
- Profitability declined materially as higher feedstock, energy, raw material and logistics costs compressed margins, while equity earnings from joint ventures fell to $268 million from $975 million.
- Performance Materials & Coatings improved primarily from price gains in Consumer Solutions; the other two operating segments experienced lower Operating EBIT.
- Dow recorded $118 million of asset-related charges associated with the Russia-Ukraine conflict, compared with $6 million of restructuring and asset-related charges in 2021. It also recorded a $68 million fourth-quarter pretax gain from recovery of certain receivables and inventory values.
- Sundry income was $727 million, compared with a $35 million expense in 2021, including a $321 million gain from the final resolution of a Nova patent infringement award and a $60 million reduction in the Dow Silicones breast implant liability.
- Dow redeemed $750 million of notes due 2026 and issued $1.5 billion of senior unsecured notes due 2033 and 2053. Net debt declined despite higher gross debt because cash and marketable securities increased.
- Dow paid $2.006 billion in dividends, or $2.80 per share, and repurchased $2.325 billion of common stock. Approximately $2.0 billion remained available under the repurchase authorization at year-end.
Liquidity, debt and capital allocation
Cash, committed and available liquidity totaled $13.7 billion at December 31, 2022. All committed credit facilities were undrawn, including $8.4 billion of committed and available facilities. Dow had $299 million of commercial paper outstanding and no substantive long-term debt maturities before 2027. Management reported compliance with debt covenants, including a 0.40-to-1.00 consolidated indebtedness-to-capitalization ratio versus a 0.70-to-1.00 limit under the revolving credit agreement.
Dow expects 2023 capital expenditures of approximately $2.2 billion, pension contributions of approximately $150 million, cash dividends from equity companies of approximately $350 million, and approximately $400 million of cash outflows related to the 2023 restructuring program.
Guidance, outlook, commentary and unusual items
- Management expects a challenging macroeconomic environment but cited moderating U.S. inflation growth, improving European energy conditions and China’s reopening as positive indicators.
- Dow expects its cost-reduction playbook to deliver approximately $1 billion of savings in 2023 through labor and purchased-service optimization, lower turnaround spending and productivity improvements.
- Planned maintenance turnaround spending is expected to decrease by approximately $300 million versus 2022.
- On January 25, 2023, Dow approved a restructuring program involving approximately 2,000 role reductions, manufacturing asset rationalization and lower turnaround spending. Expected pretax charges are $550 million to $725 million, with approximately $450 million to $550 million of related cash payments primarily over two years.
- Dow continues to target a 15% reduction in annual Scope 1 and 2 emissions versus its 2020 baseline by 2030, carbon neutrality by 2050, and commercialization of 3 million metric tons annually of circular and renewable solutions by 2030. Achievement depends on technology, capital, customer acceptance and regulatory developments.
- Principal risks include volatility in feedstock and energy prices, weak demand and industry oversupply, inflation, foreign exchange, the Russia-Ukraine conflict, supply-chain disruption, severe weather, cybersecurity, environmental compliance, climate-transition costs, litigation and pension obligations.
- Environmental remediation liabilities totaled $1.192 billion at year-end; management stated ultimate costs could be approximately twice the accrued amount. Union Carbide asbestos-related liabilities were $947 million, and the company cannot estimate the full range of potential future asbestos costs.
- Dow provided guarantees related to Sadara debt, including estimated exposure of approximately $393 million for its proportionate share of future interest payments. Management does not expect Sadara to draw on the related facility based on current forecasts.
Most important facts for investors to verify
- Whether 2023 cost savings and restructuring benefits offset weaker demand, margin pressure and planned restructuring charges.
- Feedstock, energy and logistics costs, industry capacity additions, pricing, volumes and joint-venture earnings, particularly at Sadara and the Kuwait joint ventures.
- Progress and funding requirements for major growth, decarbonization and circular-plastics projects.
- Actual 2023 capital spending, free cash flow, dividends, share repurchases and debt reduction relative to management’s plans.
- Environmental remediation, asbestos, Dow Silicones product-liability obligations and other litigation exposures beyond recorded reserves.
- Execution of the approximately 2,000-role workforce reduction and the final amount and timing of the $550 million to $725 million restructuring charge.
- The filing’s audited financial statements and non-GAAP reconciliations, including Operating EBIT, Operating EBITDA, free cash flow and net debt.