Earnings Call: Q1 2018

May 3, 2018

Good day, and welcome to DowDuPont's 1st Quarter 2018 Earnings Call. Also, today's call is being recorded. I would now like to turn the call over to Greg Friedman, Vice President, Investor Relations. Please go ahead, sir. Good morning, everyone. Thank you for joining us for our first quarter 2018 earnings call. DowDuPont is making this call available to investors media via webcast. Posted on the Investor Relations section of DowDuPont's website and through the link to our webcast. Speaking on this call today, are Ed Green, Chief Executive Officer and Howard Underleiter, Chief Financial Officer. Also with us in the room for Q And A, are Andrew Liberas, Director and Former Executive Chairman, Jim Fitterling, Jim Collins, and Mark Doyle, Chief Operating Officers for DowDuPont's Material Science, Agriculture And Specialty Products Divisions, respectively. And Neil Sherry, Vice President of Investor Relations. Please read the forward looking statements disclaimers contained in the news release and slides During the call, we will make forward looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risk and uncertainty, our actual performance and results may differ materially from of principal risks and uncertainties, which may cause such differences. Also, we will comment on segment results on a divisional basis So please take note of the divisional disclaimer in our earnings release and slides unless otherwise specified, All historical financial measures presented today are on a pro form a basis and all financials were applicable exclude significant items. We will also refer to non GAAP measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosure are contained in our earnings Thanks, Greg, and thanks, everyone, for joining the DowDuPont First Quarter Earnings Call. I'll start by covering the financial highlights, then I'll provide an update on our progress toward the key strategic drivers: the synergies, our growth plans and intended spins. I'll then hand it over to Howard to discuss for DowDuPont and the teams have come together well and they again delivered strong results. As shown on slide 4, here are price rose 3% with gains in all geographies and most segments. Operating EBITDA increased 6%. And we grew products divisions. Their growth more than overcame severe cold weather in the northern hemisphere, which shifted ag shipments from the first quarter to the second quarter. Our performance in the quarter was driven by solid execution, disciplined price volume management, cost synergies, growth projects and contributions from our value added customer driven innovations. In Material Science, the division benefited from strong innovation and product launches and from broad based price and volume gains supported by new capacity in the U. S. And the Middle East. A few examples of product innovations in the quarter include packaging and specialty plastics, launched a new buy now tie layer developed to provide improved adhesion between polyolefins and PET and polyamide materials in food and specialty packaging films. Polyurethanes introduced a new VorTeq appliance insulation system with a major appliance manufacturer which provides superior energy efficiency. And in consumer solutions, we introduced age caps smooth cosmetic and green end, which softens the appearance of wrinkles, while promoting skin blow and softness. In specialty products, Our innovation machine continues to produce numerous product line extensions that support strong top line growth. For example, in TEXAR added flexible heat and garments for athletes, while gelcare and excipients may pills more palatable. A new hytrol product made turbo gas air ducts flexible and lightweight, while the new NOMAX nano aramid reduce the weight and bulk of firefighter gear. In Ag, our combined industry leading pipeline is poised to deliver. Our near term pipeline is expected expected to deliver stronger which combined will contribute greater than $1,000,000,000 of peak sales. Another highlight for the quarter was our progress on cost synergies. We generated savings of more than $300,000,000 in the quarter, once again, ahead of our target. Based on this progress, we now expect to realize year over year cost synergy savings of $1,200,000,000, an increase of 20% from our prior Further, we are also raising our year run rate forecast to 75% of our recently increased 3,300,000,000 tar We remain very confident in our ability to hit the higher $3,300,000,000 run rate by the end of year 2. We also continue to advance EBITDA over the next few years. During the quarter, we advanced our plans to deliver approximately half of the gross synergies from the Ag division. In addition, such as enhancing our seed treatment offerings by leveraging a larger proprietary portfolio Additionally, we are establishing new business models by executing on plans to rebuild with actions such as establishing Brevant, our new global retail seed brand. In Material Science, the integration of DuPont's ethylene copolymers affords us the opportunity provide a one stop shop for our packaging customers with the broadest suite of differentiated polyethylene offerings across virtually all food, specialty and consumer packaging applications. We also see strong potential to expand our growth in polymer modifiers in infrastructure, enhancing resiliency and durability. And we will improve our solutions across where Dow Technologies And DuPont Co Polymers together will improve multiple aspects of performance and comfort. Ultimately advancing our leadership position in these markets. We also laid out plan for specific growth synergies and specialty products, which we expect to total $400,000,000. We're encouraged by the fact that we already ships with customers that overlap in the Semiconductor And interconnect solutions businesses. As we look ahead, we will be taking advantage of cross selling and new product development opportunities in construction and filtration as well as automotive, electronics and medical, and will leverage key account management and channel access in Food And Pharma to name a few. Now I'll provide an update on our progress with standing and spending the attended companies as presented on Slide 6. We continue to anticipate Materials science separating by the end of the first quarter of 2019, followed by agriculture and specialty products separating shortly after that, by June 1 2019. The objectives for us between now and the fall include assigning assets and liabilities to each intended company, negotiating terms of the necessary agreements among the 3 intended companies and completing IT system design, testing and implementation. We have been doing a lot of work in this area, and we remain on track. We continue to make progress on setting up the capital structure of each company. This work includes the separation of Heritage DuPont Assets, and liabilities into agriculture and specialty products. The movement of Dow Agrisciences into agriculture and any plea, our employees know which intended company they are aligned to and are focused on delivering results. In summary, our businesses are performing well. We're executing against our financial and operational commitments. We are excited about progress as we move toward the intended separations. Finally, I want to address something that is important to me on a personal level. I want to be these are properly launched and I plan to be actively involved after the final separations. There is a lot of value to be creative for our shareholders and my personal goal is to see it through. With that, let me turn it over to Howard to review our financial results in further detail. Thanks, Ed. Moving to Slide 7 and a summary of our first quarter results, we once again grew earnings per share, net sales and EBITDA. Drivers of the EPS increase include local price and volume gains in material science and specialty products, cost synergies, a currency tailwind, higher equity earnings and lower pension feedstock costs and the impact of the freeze related outages on the U. S. Gulf Coast. The sales increase of 5 percent was broad based with growth in most operating segments and geographies. Sales rose 15%, excluding ag, with double digit gains in both material science up 17% and specialty products up 11%. The sales decline in agriculture was driven by weather related delays to planting seasons in the Northern Hemisphere and Brazil. Overall volume declined 2% driven by the decline in ag. Material Science achieved 14% volume growth in industrial intermediates and structure and 8% growth in packaging and specialty plastics in spite of weather related supply disruptions enabled by new capacity adds from SEDARRA and on the U. S. Gulf Coast. Specialty Products delivered volume gains in all segments on solid customer demand in 4 market verticals. Which more than offset weather related shifts in demand, particularly aligned to construction end markets. Local price increased 3% led by material science, which was up 5 on strong supply demand fundamentals across most of its targeted end markets. Equity earnings increased, led by improved Sadara results and increased earnings from the Kuwait joint ventures. And the cost synergies continue to hit the bottom line as we have now delivered more than $500,000,000 of cumulative savings since merger closed. These gains translated to operating EBITDA of $4,900,000,000 in the quarter. Excluding Ag, operating EBITDA increased 26% year over year, with double digit gains in both material science and specialty products. Our cash flow from operations was down primarily and from an efficiency perspective, we are improving our turns by 2 days year over year as the divisions continue $2,000,000,000 target another $1,000,000,000 of buybacks in the second quarter. Moving now to our division and segment results, starting on Slide 8. The Material Science division achieved double digit top and bottom line growth in the quarter, advanced its growth projects and delivered ahead of plan on cost synergy efforts. 1st quarter net sales rose 17% from the year ago period, with double digit gains in all segments and gains in all geographies. Volume grew 8% and local price rose 5%. Both up in all geographies and both led by double digit increases in industrial intermediates and infrastructure In addition to solid demand in its core markets, material science also saw a boost from new capacity adds in the U. S. And the Middle East. The division delivered these results in spite of weather related supply disruptions in the United States. Equity earnings rose year over year. The largest positive contributor was Sadara, which improved by $80,000,000, putting the JV on track for its expected year over year improvement. Operating EBITDA for Material Science grew 23 percent versus the same quarter last year to $2,600,000,000 with double digit gains in every segment. Turning now to the segments, Performance Materials And Coatings achieved operating EBITDA of $628,000,000, up 31% from the year ago period, primarily due to increased pricing, improved product mix and cost and growth synergies. Consumer Solutions delivered double digit sales growth led by local price gains and disciplined price volume management and upstream silicone intermediate products. Industrial intermediates and infrastructure delivered in led to a strong quarter despite and increased maintenance and turnaround activity sales growth on double digit gains in all geographies driven by broad based local price and volume gains. Demand growth was particularly strong at Asia Pacific and EMEA, driven by the contributions from the new capacity at Sadara. Price increases in downstream, higher margin system applications led the performance in polyurethanes. The Packaging And Specialty Plastics segment achieved operating EBITDA of $1,300,000,000, up 17% from the year ago period. Polyolefin and elastomers price increases, volume gains, including the benefit of supply from growth projects, lower commissioning and startup costs, higher equity earnings and cost synergies more than offset increased feedstock costs. The Packaging And Specialty Plastics business grew volume in all fees on broad based demand strength, supported by new capacity additions on the U. S. Gulf Coast and increased Sedara production. Local price was up as increases in ethylene derivatives in the Americas more than offset moderate declines in EMEA and Asia Pacific. Demand growth was led by food and specialty packaging and a drilling consumer packaging end markets in Asia Pacific and EMEA, as well as rigid packaging applications in all regions. The business also continued to start up its investments on the U. S. Gulf Coast. The new world scale cracker and elite polyethylene train, which came online late last year, both ran at high rates through the first quarter and contributed to the bottom line. The next two assets, the Nordell EPDM and the high pressure load density facilities both came online in the first quarter, and product from both assets has already been flowing into the market. The new low density facility is ramped up to full operating rates and the Odell asset is expected to complete the full range of customer qualifications in the second quarter. Looking ahead, our next two capacity additions on the U. S. Gulf Coast are progressing well. The gas phase debottleneck in Louisiana remains on track to be completed midyear, and our new world scale specialty elastomers unit in Texas is expected to start up towards year end. Turning to Slide 9, specialty products also delivered double digit top and bottom line growth by staying close to its customers and applying its innovation power to solve their toughest The division achieved these results, while advancing the multi faceted integration of the Heritage Dow and FMC businesses, highlighting the intense focus on execution. The division reported 1st quarter net sales of $5,600,000,000, up 11% from the year ago period with gains in all regions and most segments. Volume grew 3% and local price rose 2%. Currency added another 4% and portfolio another 2%. Organic sales growth was led by Transportation And Advanced Polymers up 8% with Nutrition And Biosciences up 5%. 1st quarter operating EBITDA for the division grew 25 percent to $1,600,000,000 versus the same quarter last year with gains in every segment. Turning Folio. Organic sales increased 2%, driven by demand for our highly engineered solutions for Semiconductor, which grew double digits, as well as gains in consumer electronics, industrial and transportation markets. This more than offsets softness in photovoltaic applications, Operating EBITDA increased 9 percent to $357,000,000 in the quarter. Nutrition And Biosciences net sales increased 21% in the quarter to $1,700,000,000. Volume and local price together contributed 5 percentage points on growth in both nutrition and health and Industrial Biosciences. Net sales also included a 4% benefit from currency and a 12% benefit from portfolio, representing the acquisition of FMC Health And Nutrition business. The integration of these businesses continues to progress well. Operating EBITDA grew 32% to $418,000,000 in the quarter. Transportation and Advanced Polymers reported net sales of 14%. Volume grew 3%, driven by double digit gains in the automotive market, amid strong demand for engineering polymers, specialty lubricants and structural adhesives with growth in all regions. Our differentiated capabilities in light weighting and electric education coupled with an increase in SUVs and pickup truck builds helped fuel our strong performance. Operating EBITDA totaled $437,000,000, an increase of 36%. This growth was driven by lower pension and OPEB costs, favorable currency and gains from disciplined pricevolume management, which more than offset higher feedstock costs. Beyond share gains and new applications driving volume growth, supply is tight for nylon and compounds and other key raw materials are constrained. We've been accelerating investments in capacity and reliability and have a strong track record of meeting customers' growth needs. Safety and construction sales rose 7 percent to $1,300,000,000. Operating EBITDA of $354,000,000 rose 21% reflecting lower pension OPEB costs, execution of cost synergies, improvements in the reliability of the plants and favorable currency, partly offset by higher raw material costs. Looking ahead, we are preparing targeted high ROIC capacity expansions across the portfolio to meet rising demand from customers for our highly engineered materials and naturally sourced biotechnology based specialty food ingredients. We are outperforming in many industries due to our focus on application development and deep customer intimacy. We also are debottlenecking plans to keep up with rising customer demand in key markets, including automotive, electronics, medical, oil and gas, and food and nutrition. And we continue to execute our asset reliability program in our manufacturing facilities to improve performance unlock capacity for constrained products, Let me start by covering the weather related drivers across the Northern Hemisphere and Brazil as illustrated on Slide 10. Which caused the top and bottom line decline we saw in ag this quarter. The weather affected our U. S. Operations the most as the unseasonably cold in the seed deliveries to our to market, pioneer brand sales reps typically deliver seed to growers within only a few days of planting. And in the normal season, we deliver the majority of our total North American corn volume over a 4 week period between the end of March in early April, which straddles our fiscal quarter end. Sales in North America was shifted into the 2nd quarter. Typically, about 75% of U. S. Corn is planted by mid May, And with all of the advancements in farming practices and equipment, we expect farmers should be able to accelerate the pace of planting to enable this year's crop to be in the ground by then. And in fact, we have seen a steep increase in seed deliveries over the past 2 weeks. Weather also had an impact on our crop protection business as farmers pushed out their nitrogen stabilizer applications and spring pre emergent herbicide applications. And in Brazil, the delayed summer harvest shortened the safrinha season resulting in impact of lower explains Ag's 1st quarter net sales decline of 25% and operating EBITDA decline of 39% compared with the same quarter last year. Helping to offset some site sales, following our merger remedy, with strong growth in technologies such as isoclast, SPINOSID and SPINETERAM during the quarter. Looking ahead to the 2nd quarter, we expect operating EBITDA to be up in the high 30s percent range and factoring in the weeks of Fresnius and lower expected planted area in North America, we now expect full year operating EBITDA to be up in the high single to low teens percent range driven by the strength Turning now to our modeling guidance as well as pricing gains across most of our businesses. We continue to see synchronous global growth and numerous positive leading indicators. Our broad consumer driven portfolio benefits from that, and we see our innovations and growth investments driving above market growth. At the company level, we see 2nd quarter net sales to be in the range of $23,300,000,000 to $24,000,000,000, up more than 10% 2nd quarter operating EBITDA is expected to be up more than 20% year over year to 5.3000000000to5.5000000000 based on our volume growth, pricing gains, continued ramp of our cost synergies and the innovations we are continuing to bring to market across each of our divisions. Having just covered our ag expectations, I'll focus my continued earnings contributions from underlying end market growth, the U. S. Gulf Coast startups, and an improvement in equity earnings led by Sadara. This will be partly offset and 3 capacity additions. And in the polyurethanes chain, we expect improving supply conditions in the second half to relieve very tight isocyanate fundamentals. The Specialty Products division is forecasted to grow the top line by the high single digits percent, driven by continued demand from end markets, application and new product introductions. Operating EBITDA is expected to improve by about 20%. Volume and pricing gains and lower pension OPEB costs are expected to be partially offset Looking across all three divisions, while trade and tariff topics have been in the headlines, we believe the potential businesses. From a cost synergy perspective, we anticipate delivering between $325,000,000 $350,000,000 of year over year savings in the second quarter. This is a strong start season. Please refer to Slide 15 in the appendix for further commentary on our outlook for the second quarter. And with that, I'll now turn it back to Ed. Great. Thanks, Howard. But to close the call, I want to take a moment to acknowledge Andrew Liberis and recognizes more than 40 years as the company in 14 years as Chairman and CEO of Dow. Andrew was a major architect of our deal and has been a strong of a merger of equals with the setup of a subsequent spins a reality. I appreciate everything done to help deliver the value of this transaction. And Andrew, on behalf of everyone on this call and all our shareholders. Thank you. With that, let me turn it over to Neil to open it up for Q and First, I would like to remind you that our forward looking statements apply to both our prepared remarks and the following Q and A. Operator, please provide the Q and A instructions. Thank you. And we'll take our first question today from P. J. Juvekar with Citi. Thank you, P. J. My question is on ag and particularly on seeds. It looks like the industry lost some seed pricing. So can you talk about that? To me, it seems like during these big mergers, nobody really wanted to lose market share. And so going forward, What changes that market share mentality? Do you see that changing next season? Hi, TJ. Yes, it's probably a little bit early at this point to be calling pricing, I mean, as Howard noted in the update, we're starting this season behind 3 to 4 weeks or so. Behind. We've got good visibility on our year over year same bag tag pricing. And as we've always said, we're out about flat with some real benefits from mix coming through as we continue to launch newer technology, a series soybeans ramping and also continuing to include, some of the new lineup in our corn products. So I'd say overall mix is really driving value for us. And it's still pretty early in the season to understand what kind of final pricing is going to look like. Will it get competitive? I expect that it will be especially from a, as we start to maybe navigate through any shifts that could go on here between corn and soybeans. I have to say based on what we saw last year with A Series soybeans and what we're seeing with our order book this year, I'm feeling pretty good about where we're sitting around, around our soybean shares in North America. So again, a little early to talk specifically about that, but where I sit today and what I can see going forward, I feel pretty good about it. And next we'll move to David Begleiter with Deutsche Bank. Thank you. Good morning. Ed, with respect to your comments about being actively involved beyond separation, does that mean on the board level or on the managementCEO level? Thank you for the question. We will talk more about that in the August, September timeframe when we announce further management positions in the company. But I want just to go back to my comment and make it very clear, I will be actively involved even after the spins. Thank you and good morning everyone. And I'm just wondering the guidance slide for 2018 that was in the first quarter results didn't make it into the 2nd quarter deck. So I'm just hoping that you can give us sort of a sense of your expectations for the second half of the year. And what might have changed versus your thoughts at the first quarter? Thanks. Yes, thanks. Well, nothing changed, let me just walk through first quarter. Obviously, we had a very strong quarter and we're above our guidance and above consensus. I think you can see when you model out the second quarter, it's a very robust quarter across the board in all three divisions. And when you model it out, I think you'll see that both on sales and on EPS and EBITDA, were nicely above consensus there by 3 or 4 percentage points. So the first half of the year is racking up really nice. And you could tell from all our comments, that our end markets across the board are feeling robust to us. And I would just say for the year, look, it's early in the year. We'll probably give more guidance update next quarter on the year, but I am highly confident we will hit what's out there and consensus for us for this year. And next we'll move to Jeff Zekauskas with JP Morgan. If you look at Monsanto's volumes for the, for their February quarter, they were down 4% in seats. And I think for the first half, they were down 6%. So I can you comment on the difference between your results and the results of other industry leaders. And in Yolpez, Dow had rights to smart stacks. Is smart stack something that you can commercialize? And are you beginning to work on that? Great. Yeah, thanks for the question. You know, you're right. If you just think about the timing of wins they announced their fiscal year versus ours in our results is part of what you would have nice in their results, the lower safrinha acres that we saw in Latin America, you see that kind of fully in our plus, you see this real shift in North America. And that's primarily driven by the differences in our route to market approach. Recognized a lot of, a lot of the other competitor's seats are pushed out through retail. And so they'll book a sale and the revenue the to growers. So we recognize the revenue at shipment. And you heard Howard talk about that recognition. One of the service models that we offer is the fact that we can deliver seed right to the grower as they're firing up the planter and the field ready to plant. So we'll sometimes deliver seed within days of their planting. So you see, normally, you would see a shift in where our revenue falls versus others. This year, even particularly more dramatic as the season really, really shift. You'll also see that in some of the guidance we talk about for second quarter. Where we're going to be up in kind of the low 20s percent range. So we pick all of that up. And the reason I'm about that is I've got good visibility of that order book, right? I have invoices from growers. I know what those shipments are going to be. It's just a matter of physically shipping all of those products. Jeff, one of the other points that we're going to do both new Dow and new DuPont will stick with the same fiscal year that we now have, which is basically the calendar year. But we're going to move the ag company to a fiscal year like the competitor you just mentioned, where it's a September 1 start to the end of August. And what that will do is it'll get the planting seasons all aligned in the same quarter. Right now, as you can see what happened this quarter, our shipments happen second half of March beginning of April and it could be a major swing and that those will be in the same quarter then. So we won't have that and I think it just will make things a little bit clearer. So you will see a shift to that, the fiscal year on ag. Jeff, your second question about SmartStack we continue through the agreements that, that Dow previously had to be fully enabled with SmartStax and our teams are thinking through the different constructs that are available to us now and the different lineups that we'll have to offer. And you'll see more of that as we launch our our plans for 2019 2020, both in the northern hemisphere and the southern hemisphere. So, so stay tuned for that. And next we'll move to Hassan Hamid with Olympic Global. Good morning guys. Question around the pace of buybacks. It seems the synergy numbers are tracking well. The timeline of the spin is on target as well, but obviously because of all this macro skittishness the market, your share price has come down, over the last couple of months. So my question is, with all of these good things imminently happening, Why would you guys not accelerate the pace of your buyback? Yes. Well, look, we did a $1,000,000,000 past quarter has had, and as Howard highlighted, we're going to do another $1,000,000,000 this quarter. And really the only issue here is we're literally right in the throes of the capital structure, getting ready to then go with our modeling to the rating agencies. And we really want to get deeper into that process before we make a decision. I think you know a lot of us from our management style I agree with your comment. You'd like to put the foot down a little here on share repurchase at these prices. If we have the opportunity during the year. Once we know a little bit more clarity on that, we will seriously be taking a look at it. And next we'll move on to Josh Spector with UBS. Josh, your line is open. Let's go the next one. Okay. Move on to Chris Parkinson with Credit Suisse. Thank you. Last quarter, you spoke about reevaluating several businesses within Specialty. I believe it equated to roughly 5% to 10% of the segment can you just give us an update here and any offer any further insights as for how you're evaluating any longer term portfolio value creation opportunities in to synergy capture? Thank you. Yes. Well, look, on specialty, the short term least we're getting the synergies and we've got a much bigger number now because of the portfolio shift that we did putting all the light businesses together obviously, we've been very, very focused on that and feel very confident. We're on track with all of that. The second big real focus area, just to put them in order here is we have, a lot of growth synergy opportunities as we highlighted on the call. In Spectco. So the teams are very focused because they are all high return opportunities kind of within our control, safer to do. Don't require a lot of excess money to be spent. So a big focus in that area and it's in literally all four the different divisions of spec co. So we've really put a lot of effort into that over the last few months. And then and we just did the with our board, the DowDuPont Board, and we did it with the advisory board of Speco. We've really laid out a 2 to 3 year plan of what we want to do with the portfolio. So they're already well versed on it. And yes, you're correct. We do have some businesses we would like to exit and get the cash for those and redeploy it in higher growth areas. And we have that very defined at this point in time. And it is about up to 10% of the portfolio and we have real opportunities. We know we want to shift the spending into, in these other areas of high growth that we're talking about. We will be doing some of it this year, but the bulk of it we will do right after we do the spins of the company because our teams are so busy now on IT tax work. We need the same people to do some of this. So you'll see us few of our moves this year. And then clearly there's all kinds of optionalities we've talked about in this portfolio and whatever is best for creating shareholder value, we're going to definitely take a look at it. And we've already talked to the board about some of those potential opportunities that we need to study with them during the next 6 to 8 months. With Wells Fargo Securities. Yes, hi. Good morning, gentlemen. And, Andrew, it was a pleasure working with you and best wishes on your retirement from Dow. I'll be tracking you, Frank. Vice versa as well. Hey, following up on Dow and specifically Packaging, Howard, you mentioned a couple of things. I thought were interesting. 1, well, more than a couple of things, but Just a couple, you know, U. S. Pricing was positive on the packaging side, although Asia and EMEA was off, but you also that demand was keeping pace with the supply additions, which of course everybody is tracking closely. So my question is how do you see polyethylene pricing and margins playing out as we progress through 2018 and into 2019? Good morning, Frank. It's Jim. I got my voice back. So Howard is going to let me talk. So, I am actually a plastic pricing and demand held up really well through the quarter. We had positive price momentum right through the end of the quarter. And we start out strong into 2nd quarter. I think what you've got going on right now is, is obviously the pace of capacity additions on polyethylene has not kept up with the pace of ethylene capacity additions. And these things happen. Obviously, we remain big assets online. Global GDP is running north of 3% right now. We're running north of 4.5% growth on plastics. That's very, very robust demand. There's not enough plastics capacity coming online this year to keep up with that. And when you look at the plastic capacities across the different mixes, that's leading to some positive moves there. Yes, I think in Asia, you see some compression in the margins in Asia because you've got higher oil price in their oil based feedstocks over there. So that's compressing margins a little bit, but I'm not concerned about pricing as we move through the quarter and into the back half of the year. And I'm not concerned about capacity the end. At this rate of GDP growth, we need about the equivalent of 3 to 4 world scale crackers be built, 4 to 5 world scale crackers to be built and started up in each year. And for the next 3 years, we've got about 3 coming online. Total. So I think we're in a constructive environment here. And Steve Byrne with Bank of America. We'll have our next question. With respect to the ag division, what level of cost synergies have been realized so far since the merger. And can you quantify what you describe as than being second half weighted? What do you expect to realize later in the year? And then just other one other comment you made Howard about the expectations to recover divested revenues or divested businesses? Can you elaborate on whether or not that's just in seeds or it's also in crop chemicals? Yes, this is Ed. And you should jump in also. We've had about $100,000,000, $125,000,000 cost savings so far. And I, but remember, the ag is the only business with the bigger delay because you got to get to the next planting season. So, we will we've taken a lot of actions on a percentage basis already in ag. For instance, we've moved production into our facilities and we're going to get a major cost reduction or COGS improvement from doing that. We know exactly what it is. And we've been taking those you don't actually see it in the results yet. So when you actually see all our run rate we talked about being at 75% at the end of the year and all part of that is ag starting to kick in. So in the second half of the year, the big drivers in ag are the new product launches, which are kicking in. And the other big one is actually the synergies. Some of them finally starting to kick in because we're starting to get around to that year from when we did it. So those are the 2 big drivers that lift the 2nd half a lot. And do you want to take the divestment question? Sure. Sure, Steve. You're right. We're in the middle of looking at the total portfolio, both on the seeds and the crop protection perspective. On the seed side, what we'll do is we'll typically look to understand these different crops that are maybe tangential or not core versus crops that are core. So corn, soybeans, wheat, rice, those will be our core focus. And we'll look to continue to invest and expand in our geographies around the world. But in the past, we've taken a look at Alfalfa, we've looked at sorghum, we've looked at some of the other secondary crops and made some decisions. Now that we've combined the portfolios, we'll have an opportunity to do some more of that on the divestiture side. On the acquisition side, on seeds, I think as we continue to look at diversifying and looking at markets around the world, divestible seed industry for us is an interesting place to look and there are some players out there that have would represent some good value for us. In crop protection, we're taking kind of a best owner mindset and looking at our portfolio to stand where these products are on their maturity curves, the level of generic competition that they face around the world. And the opportunity for us to invest more heavily in our pipeline that, as Ed said, is a real part of our strength in the second half of the year. And certainly our strength over the next couple of years. At the investor conference earlier in the year, we talked about $4,500,000,000 of peak sales from launches that are occurring right now and making sure that we've got the kind of resourcing to drive those launches out of the pipeline, not just leak them out, but launch them out in an aggressive way is a core strategy for the leadership team. And next we'll move to Arun Viswan with Ben with RBC Capital Markets. Great, thanks. Good morning. Just wanted to go back to the FQ2 and full year guidance. You've spoken a little bit about ag and materials co There's a lot of percentages given for this specialty businesses as well. What would drive some of the estimates the upper ends of those ranges in each business within specialty? And then similarly, is there any upside for you guys to, as the year progresses to, again, go back to the full year guidance, be above our expectations right now? Thanks. Well, look, things feel really good right now. We have strength virtually in every end market we're serving. The only one that I was a little bit soft this quarter was the construction market and it was totally weather related in Japan and in the U. S. If you look at our guidance for the second quarter, we see a significant pickup in safety and construction. As you can see here, high single digits on the sales line and mid-30s on the EBITDA line. It's going to be a very strong quarter. So that was literally the only one we was softer than we thought and it was literally was driven by that. You see us digging right out of that right away. So, you know, we in the first quarter, just to run down some of the specialty for you, probiotics grew 30%. Pharma grew 18 percent. As you know, we're very excited about pharma because we've put the businesses together from FMC, Dow And DuPont, and really have a solid position there now. Semiconductor was up 10%. 1, I'd like to highlight is auto. We're we've been running for 3 years way above auto builds and our growth this last quarter was 8% on an average all through 2017. It was 8%. So you can clearly see because of electrification and light weighting, we're just getting more content in the cars and we see that demand continuing. So long story short, if everything holds up where we're seeing it, we're feeling very solid going into, obviously, the second quarter with the guys we've given and going into second half of the year. And as Jim Fitterling just got done talking about the cycle in the business and how it feels, it's a really good feeling now. In fact, it's amazing the stock market in the last 60 days, especially with our stock, versus where we feel things are and all. It's the biggest disconnect I think I've ever seen in my career. That is what it is, but we're worrying about running the business. Demand feels good. And as I said, I'm highly confident we'll hit consensus and you can take that. How you guys want. And I think the other thing, Arun, that you got to consider is we delivered that strong first quarter. We had some wintertime planned outages in the first quarter. So probably cost us $65,000,000 on the material side in first quarter that we're not going to have in the second quarter. We've got some higher turnarounds in the second quarter. But we've got more plant capacity coming on in plastics through the year. So our view is things are very positive here. I think people are confusing what's happening in the financial market with what's happening in our real end markets. And our real end markets are strong. And next move to Jonas Oxgaard with Bernstein. Good morning. First curious, the sirens I keep hearing in the background, is that your we beat the quarter signal or how does that Now beyond that, I was wondering a little bit about the noise with China. The trade war. Could you talk a little bit about your exposure to China? I mean, what products and how much revenue are we talking about is actually being shipped from the U. S. To China today? And what's your general thinking about the whole trade war situation? Well, let's take it by its pieces and, Jim Fairley why don't you hit it first? Look, I don't think we're looking at a major trade war here, Jonas. So I think some of that's been overplayed. I think what's going on here is we're trying to find a path toward fair treatment. With trade with all countries, including making sure that IP is protected and making sure that products aren't being dumped back here in the United States. So I think people have got us in the crosshairs on the trade war thing and I don't think that's what's going to happen. So nothing's been imposed at this time is having a dramatic impact on us. And remember, we have global assets to cater to the demand in China. The whole reason we built SEDAR was to serve the Eastern part of the world. And so that's what's happening today. We built the U. S. Gulf Coast to serve North America And South America. And I think equally in Ag with the global trade of those products, Jim Collins knows that if if product from America is not going to go to China, product from some other country is, then that American product is going to move around. Well, and just to talk on the in the ag business, just use example, if Brazil ships more of the soybeans into China, We will take up the slack because the global demand is needed. In fact, last year, there was more consumption than there was production. So it's everything that's being made globally is needed. And by the way, most of the soybeans are made in Argentina, grown Argentina and Brazil in the U. S. So our demand in the U. S, if something happened, would start going into markets like Vietnam, Indonesia, Mexico, Turkey, which have been bigger consumers than actually growing consumers of soybeans. Jonas, I'll just add one more thing. For the actual products that we sell into China, As you know, our seed business is locally sourced essentially 100% with JV partners in China. And on the crop protection chemistry sales, about half of our sales today are locally sourced and the others are brought into country and those are essentially already placed. In country for the remainder of 2018 and already for part of 2019. So from a product side, we're also in pretty good shape. Yes. And just to wrap that up from a specialty standpoint, we see no impact there. Our biggest business in China is in the electronics area. And we're pretty much all locally sourced in the market. And next we'll move on to Peter Butler of Riverside Research. Hey, Andrew. We, we might not be hearing you on Dow's quarterly conference calls, but, I think in the future, I now expect to, to hear you as a, major global leader at on the, Davos scale. So maybe the devil's in the desert, Peter, but we'll see. Okay. Well, The question is, when do you folks intend to increase the visibility on on the stock market stories for the proposed spins. Basically, you've been asking to invest to, discount a two year old story. We had a great spin. Pardon me, we had a great merger and now we're going to have spin. You know, people need to have a lot more details on, on, where are you going with these three pieces? Yes. Peter, that's a good question. And we'll be we haven't pinned down the exact date, but our plan is in kind of that September, October timeframe is to do a major investor day for each of the three businesses. And then we'll be following up, obviously, see very quickly after that book because we're going into the last months of this with all our filings that go out with a lot of detail and then we'll be doing our road show. So we'll be talking a lot more about portfolio strategy going forward. You know, a lot more than that. You'll see capital structure and all will be done and where is our leaning as management teams in each of the 3 companies on uses of cash, etcetera, etcetera. So we're not that many months off from doing a lot more of that. Peter, this is Howard. I mean, I think the only thing I would add a couple of points is we'll get the Form 10s out in the fall as well. And I would respectfully disagree with the thesis that this is a two year story. I mean, we are focusing on delivering results, whether it's volume growth, pricing growth, the cost synergies are hitting the bottom line. We've got new asset that have come online that are hitting the bottom line, both in the materials division and in the specialty division. And the ag is a shift from Q1 to Q2. So the businesses are all performing at or above their market comps. And next we'll move to John Roberts with UBS. Thanks. I thought it was a good quarter and I know you're coming up on the hour. So I just wanted to say thank you to Andrew for all your years of service and, best wishes in your new role at Aramco. Thank you, John. Great. Thank you. And our final question today we'll hear from Kevin Carthy with Vertical Research Partners. Yes, good morning. Thanks for squeezing me in. As we look across your industrial results, it occurs me that volumes are quite strong in areas like industrial intermediates and infrastructure, perhaps construction facing markets has sounded like they would be even stronger work, not for weather. So in that context, as you survey material sciences, where do you think you might need to debottleneck or consider brownfield capacity additions over the next couple of years? And then secondly, what are your thoughts on planned maintenance activity in 2Q versus 1Q? Yes, thanks Kevin for that question. Look, we have a series of high return on invested capital opportunities in front of us. What I would call incremental size investments not anything like the magnitude of what we did in the Gulf Coast and Sedara, although those incremental opportunities in plastics would add up to a similar amount of compass a much less capital. We're able to do all that within our DNA levels in material science. So I think that's very positive. We have some growth in all of the segments. So in Consumer Solutions and silicone, you're going to see some need for some additional capacity both for my business and for Mark's specialty downstream business, you're going to see that in polyurethanes in our systems business, which has been growing double digit. You're going to see some debottlenecking in Industrial Solutions in our EO derivatives business, which has not had a lot of capital added over time And, I think you're going to see continued, good strong growth, the value creation and high free cash flow coming out of those businesses. And that will conclude today's call. We thank