Dow Reports Third Quarter Results

  • Dow Delivers 45% Increase in Earnings per Share, with Broad-Based Top- and Bottom-Line Gains;
  • Delivers Eighth Consecutive Quarter of Year-Over-Year Adjusted EPS, EBITDA and Margin Growth

Third Quarter 2014 Highlights

  • Dow reported earnings of $0.71 per share or $0.72 per share on an adjusted basis(1). This compares with earnings of $0.49 per share, or adjusted earnings of $0.50 per share, in the same quarter last year.
  • Sales rose 5 percent versus the year-ago period, reaching $14.4 billion, driven by price increases associated with tightening demand conditions in key regions, with gains in most operating segments. Sales gains were led by Performance Plastics (up 9 percent on an adjusted basis(2)), and Performance Materials (up 8 percent).
  • The Company reported increased sales in all geographic areas. Sales in developed geographies grew 4 percent, led by gains in North America, where sales rose 7 percent. Sales in emerging geographies increased 6 percent, due primarily to strength in Performance Plastics in Latin America.
  • EBITDA(3) grew to $2.3 billion, up 24 percent versus the prior year, driven by ongoing productivity actions and improved market fundamentals.
  • Performance Plastics achieved record quarterly adjusted EBITDA results (up 31 percent versus the year-ago period). Performance Materials EBITDA grew 61 percent with increases in most businesses, notably in Polyurethanes and PO/PG. Electronic and Functional Materials also delivered record quarterly EBITDA (up 11 percent).
  • Adjusted EBITDA margin(4) expanded more than 240 basis points to 15.9 percent year over year.
  • Dow reported an operating rate of 88 percent, up 6 percent versus the same quarter last year, driven primarily by productivity improvements in Performance Materials and Feedstocks and Energy, coupled with higher operating rates in Performance Plastics.
  • Cash flow from operations was $1.8 billion for the quarter, and $3.7 billion year-to-date. Dow rewarded shareholders with $1.3 billion in declared dividends and $3.1 billion in share repurchases year to date.

Comment

Andrew N. Liveris, Dow’s chairman and chief executive officer, stated:

“Dow delivered a strong quarter of top- and bottom-line growth. Our low-cost positions and geographic diversification enabled growth and improving operating rates in the quarter. Record EBITDA in Performance Plastics and Electronic and Functional Materials, coupled with significant improvement in Performance Materials again this quarter, demonstrates the value of our strategy to be low cost and fully integrated in key products while adding value through technology in key markets. We continued to achieve major milestones in Agricultural Sciences – such as the recently announced regulatory approvals for our Enlist™ Weed Control System – despite lower crop prices in a seasonally weak quarter.

“This consistent execution against the plans we have firmly set – using ROC to drive self-help actions such as prioritizing spending, further enhancing productivity and liberating capital by applying a best-owner mindset to our entire portfolio – is enabling us to deliver increasing returns and maximize shareholder value creation. This remains our singular focus.” 

 

Three Months Ended

In millions, except per share amounts

Sept. 30,

2014

Sept. 30,

2013

Net Sales

$14,405

$13,734

Adjusted Sales

$14,405

$13,703

 

 

 

Net Income Available for Common Stockholders

$852

$594

Net Income Available for Common Stockholders,

excluding Certain Items

$860

 $599

 

 

 

Earnings per Common Share - diluted

$0.71

$0.49

Adjusted Earnings Per Share

$0.72

$0.50

Review of Third Quarter Results

The Dow Chemical Company (NYSE: DOW) reported sales of $14.4 billion, up 5 percent versus the year-ago period. Gains were driven by price increases associated with tightening demand conditions in key regions, with increased sales reported in most operating segments. Sales gains were led by Performance Plastics (up 9 percent on an adjusted basis) and Performance Materials (up 8 percent).

The Company reported increased sales in all geographic areas. Sales in developed geographies grew 4 percent, led by gains in North America, where sales rose 7 percent. Sales in emerging geographies increased 6 percent, due primarily to strength in Performance Plastics in Latin America.

EBITDA grew to $2.3 billion, up 24 percent versus the prior year, driven by ongoing productivity actions and improved market fundamentals.

Earnings for the quarter were $0.71 per share, or $0.72 per share on an adjusted basis. This compares with earnings of $0.49 per share, or adjusted earnings of $0.50 per share in the same quarter last year.

Dow reported equity earnings of $229 million, down 29 percent versus the same period last year. Decreases reflect higher spending at Sadara, lower styrene prices and adverse impacts associated with the unplanned outage of an ethylene production facility in Canada.

Certain Items in the current quarter included pretax charges of $12 million for nonrecurring transaction costs associated with the planned separation of a significant portion of the Company’s chlorine value chain. (See Supplemental Information at the end of the release for a description of Certain Items affecting results.)

Research and Development (R&D) expenses were down 2 percent versus the same period last year, reflecting the Company’s execution against its strategy to prioritize R&D resources on high-return market sectors.

Selling, General and Administrative (SG&A) expenses increased 8 percent as compared with the year-ago period, driven primarily by growth initiatives – including commercial activities in Agricultural Sciences.

Cash flow from operations was $1.8 billion for the quarter, and $3.7 billion year to date. Dow rewarded shareholders with $1.3 billion in declared dividends and $3.1 billion in share repurchases year to date.

Electronic and functional materials

Electronic and Functional Materials reported third quarter sales of $1.2 billion, up 3 percent versus the same quarter last year.

In Dow Electronic Materials, gains from continued strong foundry demand in Semiconductor Technologies were offset by declines in Display Technologies as a result of lower sales in films and filters and OLED materials.

Functional Materials drove sales increases in nearly all geographies, led by growth in North America. Double-digit gains in Dow Microbial Control and Dow Pharma and Food Solutions reflect strong growth fundamentals in the energy, water and pharmaceuticals market sectors.

Equity earnings for the segment were $35 million. This compares with $36 million in the year-ago period. The segment reported record third quarter EBITDA of $320 million, versus $287 million in the same quarter last year.

Coatings and Infrastructure solutions

Coatings and Infrastructure Solutions reported third quarter sales of $1.8 billion, flat versus the year-ago period, as gains in North America and Latin America were offset by declines in other regions.

Dow Coating Materials reported broad-based sales gains, led by increases in epoxy coatings. Supply limitations of vinyl acetate monomer from unplanned production outages impacted sales in Performance Monomers. In Dow Water and Process Solutions, increased demand for reverse osmosis and ion exchange technologies in North America was more than offset by declines in Asia Pacific and the Europe, Middle East and Africa (EMEA) region.

Equity earnings for the segment were $54 million. This compares with $32 million in the year-ago period. The segment reported EBITDA of $289 million, up $6 million versus the same quarter last year, as equity earnings, demand growth and productivity efforts more than offset costs associated with unplanned outages.

Agricultural Sciences

Agricultural Sciences reported third quarter sales of $1.4 billion, flat versus the year-ago period. On a year-to-date basis, the segment reported record sales of $5.4 billion.

Crop Protection sales declined 1 percent versus the same quarter last year, due to softening market conditions in North America. Year to date, sales of new crop protection products were up 18 percent, led by Isoclast™ insecticide.

Seeds delivered 5 percent sales gains versus the year-ago period, representing a record third quarter, led by soybeans and sunflower growth in North America and Latin America.

Equity earnings for the segment were $1 million. This compares with $3 million in the year-ago period. The segment reported EBITDA of $5 million, down from $18 million in the same quarter last year. Third quarter EBITDA margins reflect the impact of softer market conditions in a seasonally weak quarter weighing down Crop Protection results, coupled with increased spending on growth initiatives.

Performance Materials

Performance Materials reported third quarter sales of $3.6 billion, up 8 percent versus the year-ago period, with gains in all geographic areas.

Polyurethanes achieved double-digit revenue growth with higher sales in all geographic areas driven by gains in the consumer comfort, appliance and industrial market sectors. Sales rose in Propylene Oxide/Propylene Glycol to a new quarterly record due to strong operational performance, growth in key market sectors, as well as industry supply disruptions in both North America and EMEA. Dow Oil, Gas and Mining delivered record sales due to double-digit growth on strong shale dynamics in North America and project-related demand in refining and processing. Dow Automotive Systems reported sales gains, driven by the adoption of innovative adhesive products.

Equity losses for the quarter were $29 million. This compares with equity losses of $11 million in the year-ago period. The segment reported EBITDA of $506 million, an increase of $192 million or 61 percent versus the same quarter last year, as a result of improved market dynamics coupled with ongoing productivity actions.

Performance Plastics

Performance Plastics reported record third quarter sales of $3.9 billion, up 8 percent versus the year-ago period. Excluding the impact of divestitures, sales were up 9 percent with increases in all regions, led by double-digit gains in North America and Latin America.

Dow Packaging and Specialty Plastics continued to drive sales increases, capitalizing on strong market fundamentals and higher demand in attractive markets, including double-digit gains in the hygiene and medical and pipe market sectors, as well as continued growth in the food and specialty packaging market sector. Market demand in transportation and hot-melt adhesives drove increased sales in Dow Elastomers.

Equity earnings for the segment were $66 million. This compares with $134 million in the year-ago period. The segment reported record third quarter EBITDA of $1.3 billion, an increase of $305 million versus the same quarter last year. Performance Plastics continued to deliver profitable growth, with adjusted EBITDA margins expanding year-over-year for the ninth consecutive quarter.

Feedstocks and Energy

Feedstocks and Energy reported third quarter sales of $2.4 billion, up 2 percent versus the year-ago period, led by price increases in olefins and aromatics.

Equity earnings for the segment were $108 million. This compares with $135 million in the year-ago period. The segment reported EBITDA of $183 million, down from $187 million in the same quarter last year, due primarily to lower equity earnings.

Outlook

Commenting on the Company’s outlook, Liveris said:

“Delivering shareholder value is ingrained across the enterprise, and as we look ahead, our priorities are clear: Improve return on capital, increase cash flow by managing our portfolio of integrated value chains, and innovate and commercialize technologies that our customers value.

“We remain committed to achieving our financial targets and ongoing shareholder remuneration, and are taking targeted steps across our businesses to navigate through persistently slow and volatile global macroeconomic conditions. Looking ahead, we will continue leveraging the power of Dow’s global reach and industry-leading feedstock and operational flexibility to manage our portfolio in the midst of volatile energy markets. Our low-cost positions in key products such as ethylene and our deep integration with downstream, value-added products that create value for ourselves and our customers will uniquely position us to continue driving profitable growth. In these conditions, having global scale and flexibility is the best hedge against volatile markets.”

Dow will host a live webcast of its third quarter earnings conference call with investors to discuss its results, business outlook and other matters today at 9:00 a.m. ET on www.dow.com.

About Dow

Dow (NYSE: DOW) combines the power of science and technology to passionately innovate what is essential to human progress. The Company is driving innovations that extract value from material, polymer, chemical and biological science to help address many of the world's most challenging problems such as the need for clean water, clean energy generation and conservation, and increasing agricultural productivity. Dow's integrated, market-driven, industry-leading portfolio of specialty chemical, advanced materials, agrosciences and plastics businesses delivers a broad range of technology-based products and solutions to customers in approximately 180 countries and in high-growth sectors such as packaging, electronics, water, coatings and agriculture. In 2015, Dow had annual sales of nearly $49 billion and employed approximately 49,500 people worldwide. The Company's more than 6,000 product families are manufactured at 179 sites in 35 countries across the globe. References to "Dow" or the "Company" mean The Dow Chemical Company and its consolidated subsidiaries unless otherwise expressly noted. More information about Dow can be found at www.dow.com.

Use of non-GAAP financial measures: Dow’s management believes that measures of income adjusted to exclude certain items (“non-GAAP” financial measures) provide relevant and meaningful information to investors about the ongoing operating results of the Company. Such financial measures are not recognized in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and should not be viewed as an alternative to GAAP financial measures of performance. Reconciliations of non-GAAP financial measures to GAAP financial measures are provided in the Supplemental Information tables.

Note: The forward looking statements contained in this document involve risks and uncertainties that may affect the Company’s operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the Company’s expectations will be realized. The Company assumes no obligation to provide revisions to any forward looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

(1) “Adjusted earnings per share” is defined as earnings per share excluding the impact of “Certain Items.” See Supplemental Information at the end of the release for a description of
these items, as well as a reconciliation of adjusted earnings per share to “Earnings per common share - diluted.”
(2) “Adjusted sales” is defined as “Net Sales” excluding sales related to prior-period divestitures.
(3) “EBITDA” is defined as earnings (i.e., “Net Income”) before interest, income taxes, depreciation and amortization. A reconciliation of EBITDA to "Net Income Available for The
Dow Chemical Company Common Stockholders" is provided following the Operating Segments table.
(4) “Adjusted EBITDA margin” is defined as Adjusted EBITDA as a percentage of reported sales.
™Dow Diamond, Isoclast, and Enlist are trademarks of The Dow Chemical Company (“Dow”) or an affiliated company of Dow.