Dow CFO: Pent-up demand 'does bode well for continued economic growth'

Dow CFO and President Howard Ungerleider joins Yahoo Finance Live to discuss consumer spending and industrial output growth in the U.S. economy.

Video transcript

- Dow Inc. Is out with better than expected sales and profits for its most recent quarter. The upside results come despite supply chain disruptions continuing to weigh on industrial giants like Dow. Joining us for a first on Yahoo Finance interview is Dow president and CFO Howard Ungerleider. Howard, always nice to see you here. There's a lot of volatility out there in the markets and the economy right now to say the very least. From your vantage point, what grade would you put on the health of the industrial economy ahead of, really, what might be some interest rate hikes later this year?

HOWARD UNGERLEIDER: Yeah. Well, good morning, Brian. It's great to be with you and Julie, as always. I would say, look, if I could just start with the quarter, it was a triple beat. We beat on the top line. We beat on the bottom line. We are entering as Dow our 125th year as a company. It was a record earnings and record cash flow full year 2021. To your question on the outlook and growth, look, our view is the economy is doing well. You saw the GDP numbers out earlier today in the US.

When you look at your predictions for 2022, whether it's GDP growth, or industrial production, or manufacturing output, or consumer spending, all of those estimates, depending on which third party you're talking to, are ranging between plus 4% and plus 5% growth. You also, you know, when you look at the value chains, whether it's furniture, or automotive, or appliances, or even if you go into your grocery store, you will see shelves that are nowhere close to being stocked.

And so you also have, I think, the number is more than $5 trillion of excess savings that have accumulated in consumers' bank accounts, essentially, through the pandemic. So there's a lot of pent up demand. And I think that's why you're seeing those inflationary numbers and the raw material costs increase. But that does bode well for continued economic growth through 2022.

- And, Howard, let's get into the nitty gritty a little bit in your numbers and what that tells us about what you were just saying. So in your statement, you talk about local prices up 39%. And if you would, just explain to me, does that mean what you're charging or what you are being charged? And at the same time--

HOWARD UNGERLEIDER: Go ahead.

- Please.

HOWARD UNGERLEIDER: I was just going to say local price is the price that we are charging in local currency, right. So it doesn't have the translation effect.

- Gotcha. So local pricing up 39%. Volume down 4%, which I think is sort of a snapshot of writ large what we are seeing more broadly. That volume down 4%, is that just because of supply constraints? Are you seeing any kind of hit to demand? Or is demand still very robust?

HOWARD UNGERLEIDER: Demand is still very robust, Julie. I would say that impact on lower volume is really because of some planned turnaround activity. We had to do maintenance at our facilities. We had one large unplanned outage in the Netherlands that also impacted our ability to ship. But also the logistics and the supply chain constraints that we talked about. Those are all impacting that volume number. As you move forward into 2022, you should expect positive volume growth from Dow.

One of the big changes next year versus last year was the winter storm. If you recall, Winter Storm Uri knocked out, really, the entire industry's production for almost 30 days in the state of Texas. And the state of Texas is a large chunk of the US petrochemical industry. So hopefully-- touch wood-- that will not recur. And so we will have more opportunity to be able to ship product.

The other thing that we're seeing is marine pack cargo is improving. That was probably one of the biggest issues that we had last year. There were two strong months. March of last year was a strong month. And then the next strongest month was December. So as we went through the fourth quarter, that marine pack cargo constraints was starting to ease. And we should see that continuing to ease as we head into and through 2022.

- Has inflation peaked for Dow?

HOWARD UNGERLEIDER: It's hard to predict, Brian. But I would say, look, I think inflation-- I've been of the view that inflation was not transitory even going back maybe I think when we talked last on the New York Stock Exchange. You're going to see inflation continue here at least through the first half of the year. It's a little bit too hard to call what the back half will look like. But our costs are up. When you look at our raw material costs, or our logistics costs, or our energy costs, our costs in the fourth quarter were up more than 20%.

And I don't see that easing, especially as you look at natural gas prices that are elevated right now. And you've got oil. Brent touched 90 yesterday. And there's just not enough supply of new barrels of oil versus the demand growth that people are seeing because of the GDP and the manufacturing growth output that people are expecting.

- So, Howard, just quickly, what does that mean for you guys raising your prices in 2022? How much do you think that you're going to continue to see that?

HOWARD UNGERLEIDER: So inflation for Dow, I would say it's a tale of two points. In the short run, inflation hurts everyone because you're not able to capture all of the pricing that you need in order to keep pace from a margin perspective. But over the medium term, Dow historically has done very well with an inflationary environment and an environment that has rates moving up. We tend to outperform in those periods of time because you're able to drive higher pricing, which typically allows you to at least keep pace with your margin growth as your volume is growing and potentially be able to expand it over time.

- Well, the market seems to agree with you, at least in the early going. Shares of Dow up about close to 3% in the premarket. Dow president and CFO Howard Ungerleider, always good to see you. We'll talk to you soon.

HOWARD UNGERLEIDER: Great to see you. Thank you.