Assessing the Legal and Financial Risks Facing Dow Inc. Amid a Securities Class Action

Investor due diligence in the wake of material misstatements and dividend cuts demands a rigorous examination of both legal and financial risks. For Dow Inc. (NYSE: DOW), these risks have crystallized in a securities class action lawsuit and a deteriorating earnings outlook, raising critical questions about corporate transparency and capital allocation.

Legal Risks: A Case of Misaligned Expectations

A securities class action lawsuit, Sarti v. Dow Inc. (No. 25-cv-12744, E.D. Mich.), alleges that the company and its executives violated the Securities Exchange Act of 1934 by overstating its ability to navigate macroeconomic and tariff-related challenges while concealing the severity of declining sales and product oversupply [1]. The case, which spans purchases of Dow securities between January 30 and July 23, 2025, hinges on the argument that management’s assurances about financial flexibility—particularly regarding dividend sustainability—were materially misleading [2].

The lawsuit gained momentum after two pivotal disclosures. First, BMO Capital downgraded Dow to “Underperform” on June 23, 2025, triggering a 3% stock price drop [3]. Then, on July 24, the company reported a non-GAAP loss of $0.42 per share—far exceeding expectations—and announced a 50% dividend cut, sending shares plunging 17.45% [4]. These events, according to the plaintiffs, exposed the inadequacy of prior disclosures about competitive pressures and operational headwinds [5].

With the lead plaintiff deadline set for October 28, 2025, the litigation could reshape investor perceptions of Dow’s governance. If the court certifies the class, the company may face substantial legal costs and reputational damage, compounding its financial strain [6].

Financial Health: Liquidity Strains and Strategic Reversals

Dow’s Q2 2025 results underscore the gravity of its challenges. Net sales fell 7% year-over-year to $10.1 billion, with all operating segments reporting declines, particularly in Packaging & Specialty Plastics [7]. Operating EBIT turned negative at $21 million, and cash flow from operations deteriorated to -$470 million, reflecting margin compression and lower earnings [8]. Despite this, the company distributed $496 million in dividends before the July 24 cut, highlighting a misalignment between capital returns and liquidity needs [9].

To address these pressures, Dow has accelerated cost-cutting measures, raising its annual savings target to $400 million and pursuing $6 billion in restructuring actions, including asset divestitures and layoffs [10]. The company also relies on $3 billion in proceeds from a legal settlement with Nova Chemicals and non-core asset sales to fund its turnaround [11]. However, analysts caution that these steps may erode long-term competitiveness, particularly in high-growth areas like decarbonization [12].

Investor Due Diligence: Navigating Uncertainty

For investors, the case underscores the importance of scrutinizing management’s communication and liquidity metrics. Key considerations include:
1. Legal Exposure: The potential for a certified class action could divert resources from operational recovery and amplify shareholder losses.
2. Dividend Sustainability: The abrupt 50% cut signals a shift in capital allocation priorities, raising questions about future payouts and reinvestment in core businesses.
3. Balance Sheet Resilience: With a debt-to-equity ratio of 103.62%, Dow’s leverage remains a concern, particularly if restructuring proceeds fall short of expectations [13].

BMO Capital’s downgrade to “Underperform” and a $22 price target (from $29) reflect skepticism about Dow’s ability to stabilize its earnings amid weak demand and pricing pressures [14]. Investors must weigh these risks against the company’s restructuring efforts and the likelihood of regulatory scrutiny intensifying.

Conclusion

Dow Inc.’s current predicament illustrates the interplay of legal and financial risks in a volatile market. While management’s cost-cutting and asset sales aim to restore liquidity, the securities class action and dividend reversal expose vulnerabilities in its strategic narrative. For investors, due diligence requires a granular analysis of both the lawsuit’s potential outcomes and the company’s capacity to adapt to a prolonged downturn. As the lead plaintiff deadline approaches, the market will likely remain cautious, awaiting clarity on Dow’s path to regaining credibility.

Source:
[1] Dow Inc. Class Action Lawsuit [https://www.rgrdlaw.com/cases-dow-inc-class-action-lawsuit-dow.html]
[2] Rosen Law Firm Urges Dow Inc. (NYSE [https://www.businesswire.com/news/home/20250903345670/en/Rosen-Law-Firm-Urges-Dow-Inc.-NYSE-DOW-Stockholders-with-Large-Losses-to-Contact-the-Firm-for-Information-About-Their-Rights]
[3] Pomerantz Law Firm Announces the Filing of a Class ... [https://www.prnewswire.com/news-releases/pomerantz-law-firm-announces-the-filing-of-a-class-action-against-dow-inc-and-certain-officers--dow-302544561.html]
[4] Dow Inc. Class Action [https://robbinsllp.com/dow-inc/]
[5] Dow reports second quarter 2025 results [https://investors.dow.com/en/news/news-details/2025/Dow-reports-second-quarter-2025-results/default.aspx]
[6] Dow Inc. Investors with Substantial Losses Have ... [https://www.prnewswire.com/news-releases/dow-investor-alert-dow-inc-investors-with-substantial-losses-have-opportunity-to-lead-the-dow-class-action-lawsuit-302542509.html]
[7] Earnings call transcript: Dow Inc Q2 2025 sees stock drop amid earnings miss [https://www.investing.com/news/transcripts/earnings-call-transcript-dow-inc-q2-2025-sees-stock-drop-amid-earnings-miss-93CH-4198766]
[8] Dow's Q2 Wipeout: Cash Flow Collapses, Debt Rises, and ... [https://www.investing.com/analysis/dows-q2-wipeout-cash-flow-collapses-debt-rises-and-investors-flee-20066289]
[9] Dow (DOW) Q2 2025 Earnings Call Transcript [https://www.fool.com/earnings/call-transcripts/2025/07/24/dow-dow-q2-2025-earnings-call-transcript/]
[10] Dow Inc.'s Legal Storm and Shareholder Value [https://www.ainvest.com/news/dow-legal-storm-shareholder-test-corporate-transparency-turbulent-times-2509/]
[11] Tariff-Related Securities Suit Filed Against Dow Chemical [https://www.dandodiary.com/2025/09/articles/securities-litigation/tariff-related-securities-suit-filed-against-dow-chemical/]