Dow CFO on plans for zero-carbon growth, first investor day
Howard Ungerleider, Dow President and Chief Financial Officer, joins Yahoo Finance Live to discuss the company's zero-carbon growth plans and what to expect from its first ever investor day.
Video Transcript
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BRIAN SOZZI: At its investor day this morning, Dow outlined a new plan to boost operating profits by $3 billion. The company will also reiterate its 2050 carbon neutrality commitment. Let's get a behind-the-scenes look at this plan with Dow president and CFO Howard Ungerleider. Howard, good to see you as always here. Thanks for coming on.
That is a big number, $3 billion in additional operating profits. What's the timeline on achieving that? And how do you get there?
HOWARD UNGERLEIDER: Well, thanks a lot for having me, Brian. It's great to be back here on the floor of the New York Stock Exchange. We were last back here three years ago, as we were getting ready to spin out the new Dow from Dow DuPont. In the last three years, we've uplifted the earnings of the entire enterprise by $2 billion a year over the economic cycle.
And team Dow has delivered top quartile performance in cash flow conversion, in cost structure, in net debt reduction, and in shareholder remuneration. And as you pointed out with that question, what we're here today to talk about is the next several years. And that's $3 billion of additional uplift in earnings over the economic cycle.
To answer your question, we'll see $2 billion of that-- actually, more than 2 and 1/2 billion dollars of that over the next several years through 2025. And then the big announcement this morning is our first-ever net zero carbon emissions site in Alberta, Canada, where we're going to be decarbonizing the entire site and growing the earnings of that site. And we'll be doing that. That'll RTO in 2027 in first phase and then 2029 in the second phase.
JULIE HYMAN: Pardon me, Howard. It's Julie here. RTO? In my world, that's return to office. But I think that's not what you mean here.
HOWARD UNGERLEIDER: Ready to operate or return to operation, sorry. [CHUCKLES]
JULIE HYMAN: Ready to operate, OK. That's OK, that's all right.
HOWARD UNGERLEIDER: Good to see you, Julie.
JULIE HYMAN: Good to see you too. Talk to me. How does that work? In other words, how do you make a chemical plant-- you guys, as you said, are going to be making ethylene there. How does it operationally get to zero carbon emissions?
HOWARD UNGERLEIDER: Yeah, so we're doing it primarily with an autothermal reformer and carbon capture. So basically, we've got an existing hydrocarbon cracker on the site today. As a part of this investment, we will be building a brand new world-scale cracker at that site as well. So it's a brownfield investment, lower-risk, higher return on invested capital project.
And then connected to the cracker, we will put an autothermal reformer. What that autothermal reformer does is take offgas or waste gas from both crackers, turns it into hydrogen. And then that hydrogen will go back into the process. And we'll close the loop.
And then we also will join the Alberta trunk line. Carbon capture has been a capability in Alberta for quite a while. So we'll take carbon capture and capture any of the carbon and then sequester and store that carbon. So that'll allow us to get probably 95% of the carbon off of the site. And then we'll do the rest either with alternative energy and/or some offsets to close the gap from the 95% to the 100% to really make it a net zero emission site and the first ever net zero emission site around the world.
BRIAN SOZZI: Howard, two of your largest investors are in fact Vanguard and BlackRock. They own, collectively, about 14% of your shares. What are those meetings like now with these companies, both of which, I would say, are very focused on ESG?
HOWARD UNGERLEIDER: Yeah, I mean, look, they're great investors. They've been with us for the long haul. And I think you're exactly right. I mean, certainly, all the conversations that we have every quarter, the ESG component of it continues to increase.
We build though, on a track record of strength. So we've set 10 year sustainability goals for, now, three decades. And we're in our 18th year of annual sustainability reporting with our intersections report that we just published several months ago.
And to your point about in the open, our 2050 goals, right? So we set the 2050 goal to be carbon-neutral across the entire enterprise. And then we set the interim goal to take another 15% of our carbon emissions down by 2030. And that's on a 2020 basis. And that builds on the first 15% reduction that we've already achieved from 2005 to 2020. And we've been able to do all of that reduction while we've also been increasing the earnings power of the company.
JULIE HYMAN: Howard, let's talk feedstock, shall we? In other words, the stuff that you guys use to make your products. As we've been talking about, oof, commodity prices right now have been hot. We've seen oil prices go higher, natural gas prices go higher, et cetera, et cetera. How are you guys managing that? Are you raising your prices? How far out are you buying, for example? What are you doing?
HOWARD UNGERLEIDER: Well, we're doing all of the above. I would say one of the benefits that we have as Dow is we've been investing in feedstock flexibility, literally asset by asset, furnace by furnace around the world. So we have the ability to crack different kinds of natural gas, whether it's the US shale advantage or whether it's the Alberta project that we just talked about. That Alberta advantage is also a structural advantage and has been in place for probably five decades.
We also are a major player in Bioblanca Argentina with gas there out of the Vaca Muerta shale fields. And then of course, we have our investments in the Middle East as well. But feedstock flexibility is key.
Obviously, we're dealing with inflation that almost everybody in every market sector is. And so we're no different. We are working to raise our prices to at least compensate for some of that higher feedstock cost. But on a relative basis, we are in a very good position because of that feedstock flexibility and our geographic diversity of our production.
BRIAN SOZZI: Howard, yeah, to your point, I mean, inflation is really sticking around. And it's proving anything but transitory. The main, I would say, ingredient, if you will, of everything you do really is hydrocarbons. It is oil-based. How concerned are you about this latest push higher in oil prices and your ability to forecast your business?
HOWARD UNGERLEIDER: Well, I think look, the reality is everything has got some inflation, to your point. And I agree with your point that it doesn't feel very transitory at the moment. I mean, the reality is, we came off of the pandemic where basically, most of the industrial economy and the consumer economy shut down. And now the demand has snapped back much faster than pretty much everybody has predicted.
And as a result, if we can produce more, we can definitely sell more. So we're doing our best that we can to try to drive that supply growth. And then you manage it customer by customer, market by market, application by application. But I feel really good about the markets that we serve.
So we participate today in about $650 billion worth of market opportunity. And the markets that we participate in, whether it's packaging, infrastructure, home and personal care, or mobility, these are markets that are growing 1 to 1 and 1/2 times GDP. So by 2025, that'll be north of $800 billion a market opportunity. So a significant amount of growth potential for us.
BRIAN SOZZI: I'll tell you, Howard, the split seems like yesterday. Good to see you down there at the New York Stock Exchange. Dow president and CFO, Howard Ungerleider, have a great rest of the day.
