Dow Inc. 2023 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, 2023. Dow is a global materials science company operating 98 manufacturing sites in 31 countries with approximately 35,900 employees. Its reportable segments are Packaging & Specialty Plastics, Industrial Intermediates & Infrastructure, and Performance Materials & Coatings.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $44.622 billion | $56.902 billion | Down 22% |
| Income before taxes | $656 million | $6.090 billion | Down materially |
| Net income available to Dow Inc. common stockholders | $589 million | $4.582 billion | Down 87% |
| Diluted EPS | $0.82 | $6.28 | Down 87% |
| Cash from operating activities, continuing operations | $5.164 billion | $7.486 billion | Down 31% |
| Free cash flow | $2.808 billion | $5.663 billion | Down 50% |
| Capital expenditures | $2.356 billion | $1.823 billion | Up 29% |
| Cash and cash equivalents | $2.987 billion | $3.886 billion | Down $899 million |
| Gross debt | $15.086 billion | $15.422 billion | Down $336 million |
| Net debt | $10.799 billion | $10.597 billion | Up $202 million |
Cost of sales was $39.742 billion, or 89.1% of sales, compared with 84.9% in 2022, indicating significant gross-margin pressure. The filing does not provide a consolidated GAAP operating margin; reported Operating EBIT was $2.778 billion versus $6.590 billion in 2022, implying an Operating EBIT margin of approximately 6.2% versus 11.6%.
- Packaging & Specialty Plastics sales were $23.149 billion and Operating EBIT was $2.700 billion, down 21% and 34%, respectively.
- Industrial Intermediates & Infrastructure sales were $12.538 billion and Operating EBIT was $124 million, down 24% and 91%, respectively.
- Performance Materials & Coatings sales were $8.497 billion and Operating EBIT was $219 million, down 21% and 83%, respectively.
- Sales declines reflected a 16% decrease in local price and product mix and a 6% volume decline; currency impact was flat overall.
- Dow paid $1.972 billion in dividends, or $2.80 per share, and repurchased $625 million of common stock. Approximately $1.425 billion remained under the repurchase authorization at year-end.
- Current liquidity, including cash and committed available facilities, was $12.8 billion. The company had $8.4 billion of committed and available credit facilities, all undrawn, and no substantive long-term debt maturities until 2027.
Material changes versus the prior comparable period
- Demand and pricing weakened across all major segments amid slower global economic activity, industry capacity additions, and lower energy and feedstock costs.
- Equity in losses of nonconsolidated affiliates was $119 million, compared with $268 million of equity earnings in 2022, primarily because of weaker results at Sadara and Kuwait joint ventures.
- The 2023 restructuring program generated $535 million of pretax charges, including $344 million of severance costs and $191 million of asset write-downs and write-offs. The program included a workforce reduction of approximately 2,000 employees and is expected to be substantially complete by the end of 2024.
- Sundry expense was $280 million for Dow Inc., compared with $727 million of income in 2022. Key 2023 items included a $642 million non-cash pension settlement charge and foreign-exchange losses, partly offset by a $106 million gain related to a Nova Chemicals legal matter.
- The effective tax rate was negative 0.6%, compared with 23.8% in 2022, primarily because of changes in geographic earnings mix and recognition of tax basis in foreign assets.
- The company increased investment in growth and decarbonization projects, including the Fort Saskatchewan Path2Zero project in Alberta, Canada. Capital spending is expected to average approximately $1 billion annually through 2029 for this project.
Guidance, outlook, risks and unusual items
Management expects continued softness in industrial and durable goods demand in early 2024, with early positive signals in construction, automotive, and consumer electronics. Packaging & Specialty Plastics margins are expected to improve in the second half of 2024 as industry operating rates recover. Industrial Intermediates & Infrastructure fundamentals are expected to remain pressured by capacity additions, while Performance Materials & Coatings expects volume growth in selected silicone markets and modest price increases. Planned maintenance turnaround spending is expected to increase by approximately $200 million versus 2023.
- 2024 projected capital expenditures: approximately $3 billion.
- 2024 expected pension contributions: approximately $150 million.
- 2024 expected restructuring-related cash outflows: approximately $400 million, including implementation costs.
- The Plaquemine, Louisiana Glycol-2 unit was damaged by an explosion and fire in July 2023. No injuries were reported; the estimated pretax earnings impact was approximately $100 million per quarter, and restart was expected in the second quarter of 2024.
- Environmental remediation accruals totaled $1.180 billion. Management stated that ultimate costs could be approximately twice the accrued amount.
- Union Carbide asbestos-related liabilities totaled $867 million at year-end, including future defense and processing costs. Management stated that additional costs could materially affect results or cash flows in a particular period.
- Legacy agricultural-product groundwater contamination matters resulted in a $177 million pretax charge in 2023; the related liability was $232 million at year-end.
- Dow guarantees obligations associated with nonconsolidated affiliates, including Sadara. Total guarantee maximum future payments were $1.385 billion, excluding an estimated $298 million of Dow’s share of future Sadara interest payments during the applicable grace period.
- Principal risks include cyclical demand and pricing, excess industry capacity, raw-material and energy volatility, high interest rates, geopolitical conflicts, supply-chain disruptions, environmental and plastics regulation, climate-transition costs, severe weather, litigation, pension funding, cybersecurity, and execution risk on major capital projects.
Most important facts for investors to verify
- Whether pricing, volumes, and segment Operating EBIT recover in 2024, particularly in Industrial Intermediates & Infrastructure and Performance Materials & Coatings.
- The timing, cost, and operating impact of the Plaquemine Glycol-2 restart.
- Actual 2024 capital spending and funding requirements for the Alberta Path2Zero project.
- Progress and remaining cash costs under the 2023 restructuring program.
- Net debt, free cash flow, dividend coverage, and the pace of share repurchases.
- Changes in environmental, asbestos, groundwater contamination, and other legal contingencies.
- Performance and potential funding or guarantee exposure from Sadara, EQUATE, and other nonconsolidated affiliates.
- Achievement of Dow’s climate and circularity targets, including the feasibility and economics of planned low-carbon and recycling investments.