Dow Posts 7 Percent Revenue Drop in Q2

Dow (DOW 1.74%), a leading global materials science and chemicals company serving industries ranging from packaging to infrastructure, reported earnings for Q2 2025 on July 24, 2025. The key headline: the company missed expectations on both profit (non-GAAP EPS) and revenue, continuing a tough period for the industry. Its non-GAAP EPS was a loss of $0.42, below the analyst consensus of a $0.17 non-GAAP loss. Revenue (GAAP) came in at $10.1 billion, behind the expected $10.24 billion (GAAP). Overall, the period marked a step down from earlier quarters, due to margin pressure, lower prices, and weak demand.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Company Overview and Key Success Factors

Dow operates on a global scale, producing a wide range of chemical, plastic, and specialty materials. Its products find their way into everything from food packaging and adhesives to paints and building materials. The company’s core business relies on three main segments: packaging and specialty plastics, industrial intermediates & infrastructure, and performance materials & coatings.

In recent years, Dow’s competitive strengths have centered on integrated manufacturing, low-cost feedstock positions, and a proactive approach to sustainability. Its ability to manage the supply chain across continents and its ongoing investment in new technologies have been vital. The company points to innovation, a broad global footprint, and its integrated value chain as essential factors for its long-term performance. As business conditions remain volatile, execution on cost reduction, asset optimization, and capital preservation have all become important strategic focuses.

Quarter in Review: Financial and Operational Highlights

The quarter saw widespread declines across all the company’s major metrics. Non-GAAP EPS was a loss of $0.42, missing the consensus forecast and reversing a $0.68 per share profit in the prior year. Revenue dropped 7% year over year, reflecting both lower local prices (down 7%) and a 1% year-over-year decline in volumes. The top-line shortfall was mirrored by margin compression and negative free cash flow (non-GAAP), with operating EBIT (non-GAAP) swinging to a loss of $21 million, compared to $819 million of profit in Q2 2024.

Dividing the business by segment: packaging and specialty plastics revenue fell 9% year over year. This segment, which makes polyethylenes and other plastics for consumer and industrial uses, was hit by a 10 % decline in local pricing. Volumes in the segment rose 1% year over year, driven by higher polyethylene sales, yet not enough to offset price drops. The start-up of the Poly-7 polyethylene asset on the U.S. Gulf Coast was a notable event, enhancing integration for the future but reducing short-term merchant ethylene sales. The performance materials & coatings segment, which produces silicones and coatings used in electronics, architecture, and automotive, saw a 5% year-over-year revenue decline and operating EBIT of $152 million (non-GAAP). Success here was due to improved downstream silicones sales in areas like personal care and mobility. Industrial Intermediates & Infrastructure posted a 6% sales decrease, with operating EBIT falling to a $185 million loss, reflecting weaker polyurethanes volumes and ongoing European asset rationalization.

Cash flow was a key concern. Free cash flow, which represents cash left after capital expenditures and is an important indicator of a company’s ability to fund operations and returns, was negative $1.13 billion. Cash from operations was down by $1.3 billion year over year, and negative for the quarter. The company cited planned maintenance, new project spend, and a negative margin environment as major pressures. On the balance sheet, cash and equivalents rose to $2.40 billion.

Several one-time events colored the period. Dow took after-tax charges of $0.76 per share, mostly related to restructuring and asset write-downs in Europe. The sale of the flexible packaging adhesives business in late 2024 also influenced segment performance comparisons. Management stated it is adjusting the regular dividend, with CEO Jim Fitterling pointing to the need for a "balanced capital allocation framework." The payment for the quarter was $496 million in dividends, down from earlier periods.

The shift in segment results also reflects a broader industry trend. Dow, like its European rivals, is shrinking or idling underperforming assets in response to lower demand and persistent overcapacity. The announcement of a shutdown for upstream siloxanes in the UK, supporting a shift toward higher-value specialty silicones, is a specific example. Across Europe, rationalizations are accelerating as the company looks to manage through a long industry downcycle. On the product innovation front, investment continued with the Poly-7 asset in the U.S. Gulf Coast and the commissioning of a new alkoxylation plant in Texas targeting growth markets in personal care and pharmaceuticals, expected to be fully operational by mid-2025. Despite sector pressure, downstream silicones volumes grew for the sixth consecutive quarter through Q1 2025, supporting margin resilience in the performance materials & coatings division.

Looking Ahead: Outlook, Guidance, and Key Issues for Investors

Citing uncertainty around global trade, tariffs, and the timing of demand recovery, management did not offer formal forward guidance for the third quarter or the full fiscal year. In comments, leadership suggested some easing of quarterly pressures could come from new asset contributions and operating cost reductions. Dow’s plan to activate more than $6 billion in cash support actions by 2026 was reiterated, including cost reductions, asset sales, and spending discipline. Ongoing European asset reviews and potential further plant rationalizations were also highlighted. Beyond the current period, management underscored the company’s flexibility and integration, and its ability to shift supply chains in response to changing tariff regimes, but did not set specific targets for earnings or revenue recovery.

Investors are encouraged to track several critical issues over the coming quarters: the pace at which global demand for chemicals and plastics recovers, success in shifting the portfolio away from structurally uncompetitive assets, execution on promised cost reduction measures, and any adjustments to the dividend. Regulatory and trade developments, especially related to tariffs, also hold short-term consequences for the company’s performance.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.