Howard Ungerleider, Dow Inc. CFO, joins Yahoo FInance’s Seana Smith and Julia La Roche to discuss the impact the coronavirus is having on demand in the U.S. and China.

Video Transcript

SEANA SMITH: Well, we want to talk about how the low price of oil and then also the coronavirus outbreak, how it is affecting numerous companies worldwide. You don't have to look any further than Dow, Inc to see the impact that the outbreak has had on several of these companies. We have Dow Inc losing just around half of its value since the start of the year.

So let's learn a little bit more about this and bring in the CFO of Dow Inc. We have Howard Ungerleider. And Howard, thanks so much for joining me today. We talk about the impact that this outbreak is having on many multi-national companies. From your perspective, just in terms of what you're seeing demand wise and also just in the markets, really broadly, overall, how badly is the coronavirus impacting your business specifically?

HOWARD UNGERLEIDER: Well, good afternoon, Seana. Great to be with you. Thanks for having me on. You know, first, I would just want to say our hearts go out to everybody, every one of us around the world, that are dealing with the coronavirus. And I can't tell you how proud I am of the Dow teams around the world that are running our assets, as well as working with our customers and keeping all of our employees safe.

You know, demand is holding up actually pretty strongly. When you think about our portfolio, a big part of our portfolio is tilted toward the consumer. We have a large packaging business. We have a significant amount of materials that go into sanitizers, go into cleaners, go into detergents. Also in our polyolefins franchise, we do a significant amount of non-wovens that go into health care, medical gowns, and masks and things like that. So demand is holding up very well.

JULIA LA ROCHE: Howard, it's Julia La Roche. Thank you so much for joining us. I want to get your take on what you're seeing, as it relates to what's going on in China, as they come back online. What are you seeing there? Walk us through what's going on there. Thanks.

HOWARD UNGERLEIDER: Yeah, Julia, good afternoon. So what we saw in China, you know, when you looked at Chinese New Year, clearly, the Chinese government and the interventions that happened where we extended Chinese New Year for about 10 days, we saw demand really stop for about 10 days to two weeks. And ever since then, demand has been slowly ramping back up.

From a Dow perspective, we have about 15 different assets in mainland China. And all but about two of them are running nearly full. There's a couple of smaller assets that are either down or running at lower utilization rates because of either lack of demand at the consumer level or, more typically, some logistics constraints that are still happening. But for the most part, we're really seeing a nice rebound in demand in China at this point in time.

SEANA SMITH: Howard, I want to ask you about your quarterly dividend. Right now, as it stands, it's at $0.70. You've taken steps to protect this dividend over time recently. But with the lower oil prices, like we've been talking about the fact that oil prices are at an 18-year low, also the effect of the coronavirus outbreak. And you're saying it's not impacting demand just yet.

But if the outbreak does stay or if it's worse than we maybe anticipate here in the US, that's something to keep in mind. So at $0.70 level, do you think that is still going to be sustainable at that point?

HOWARD UNGERLEIDER: The dividend continues to be our top priority. It's a key part of our investment thesis. When we think about all the work that we did as we were ready to spin out of Dow Dupont last year, we've got a very strong balance sheet.

So we took $3 billion of leverage out of the company last year. We reduced our interest expense by $100 million. Just in February, we went back to the Eurobond market for the first time in a number of years, because we were limited through the merge period.

So we raised 2.25 billion euros. We used that money to really extend out our debt maturities. So today, we don't have any substantive debt maturities coming due until the back half of 2023. So we've got more than three years of room.

We stress tested our balance sheet and that dividend through a range of Monte Carlo simulations. And so based on a $6 billion EBITDA run rate, which many of the sell-side analysts that cover us have a stress case in the $5 and 1/2 to $6 billion basis. And even in that place, we have plenty of free cash flow to be able to cover that dividend.

A couple of other changes last year-- to this year, we have more than a billion dollars of transaction costs, which we're not going to have to spend. We also have about a billion dollars of non-operating cash flow that we expect, whether it's working capital or some legal settlements that we have and some agreements that we have where cash is coming in on a non-operating basis as well. So we're in very good shape.

JULIA LA ROCHE: Howard, it's Julia again. I just want to turn back to just the environment that we're in, the sell-off that we're seeing in the markets. Seana was also referencing oil hitting-- having its third worst day on record, hitting that 18-year low. What is the strategy when operating this business, when it comes to navigating what's going on in the markets? And also, how are you thinking about the virus as it relates to the employees at Dow?

HOWARD UNGERLEIDER: Yeah, I think, you know, in terms of your first question, how do you handle low oil, I think it really plays to Dow's strength. We've invested for many, many decades in feedstock flexibility, asset by asset, around the world.

So we have, if you look at on the US Gulf Coast, we have two to three times the feedstock flexibility in NGLs or NAFTA. Versus the average without us, we have the ability to crack all NAFTA in Europe, or we can crack about 65% LPGs.

And we have other assets around the world, whether it's in Canada, in Alberta, in Argentina, in Kuwait, or a joint venture in Saudi Arabia. So we have very good absolute cost position and very good relative feedstock flexibility that we can pivot and be agile, depending on what feedstock is advantaged at the moment, given the situation.

Relative to how we're handling the coronavirus, I mean, I think from an employee standpoint, we're doing everything that you would expect. Anywhere-- anything that's not absolutely business critical to run our assets, folks are now working from home, virtual. We've had significant ramp-up in our video conferencing. I did about a half a dozen of video conferencing already today. So we're already flexing new muscles, as it comes to virtual work.

But in our facilities, we've ramped up the sanitization. All of our cafeterias are closed for dining, only takeaway sandwiches and soups and things that can be prepackaged. And then we're keeping social distance, even when we have meetings, and they're 10 people or less. So I couldn't be prouder of the Dow folks that are staying safe, keeping our assets running, and making sure that we're staying close to our customers.

SEANA SMITH: OK, Howard Ungerleider, CFO of Dow Inc, thanks for joining us today.