Dow Reports Fourth Quarter and Full-Year Results

Earnings Per Share Rise 31 Percent vs. 4Q13 on an Adjusted Basis, Reaching $0.85, or $0.63 on an As-Reported Basis;
Company Delivers Record 4Q and Full-Year Adjusted EBITDA with Increases across All Operating Segments;
Reports Ninth Consecutive Quarter of Year-Over-Year Adjusted EPS, EBITDA and EBITDA Margin Increases

Fourth Quarter 2014 Highlights

  • Dow reported earnings per share of $0.85 on an adjusted basis(1) or $0.63 on an as-reported basis. This compares with earnings of $0.65 per share on an adjusted basis in the year-ago period, or $0.79 per share on an as-reported basis.
  • EBITDA rose 15 percent versus the prior year on an adjusted basis(2), reaching a fourth quarter record of $2.4 billion, or $2.1 billion on an as-reported basis(3). Adjusted EBITDA grew in every operating segment, led by Agricultural Sciences (up 40 percent), Performance Materials & Chemicals (up 18 percent) and Performance Plastics (up 6 percent).
  • EBITDA margin expanded 218 basis points on an adjusted basis(4) versus the year-ago period, with increases across all operating segments, as the Company’s integration and targeted end-markets enabled continued price stability in a declining raw material environment. Margin expansion was driven primarily by Agricultural Sciences (up 300 basis points), Consumer Solutions (up 279 basis points) and Infrastructure Solutions (up 203 basis points), due primarily to increased demand for advantaged technologies in key end-markets.
  • Sales were $14.4 billion, flat versus the same quarter last year, as volume increased in both developed geographies (up 4 percent) as well as emerging geographies (up 5 percent). Volume gains were offset by price declines driven primarily by Western Europe (down 14 percent), which included currency headwinds.
  • Dow expanded volume in most segments – led by Agricultural Sciences (up 9 percent). Double-digit increases in Epoxy and Polyurethanes drove volume gains in Performance Materials & Chemicals (up 7 percent). Demand also rose in Performance Plastics (up 3 percent).
  • Dow reported an operating rate of 86 percent for the quarter, up 4 percentage points versus the year-ago period – representing the fifth consecutive quarter of year-over-year operating rate increases. Gains were driven primarily by strong demand in Performance Plastics, coupled with ongoing productivity improvements in Performance Materials & Chemicals.
  • Cash flow from operations was $2.8 billion for the quarter – an increase of more than $500 million versus the year-ago period – demonstrating the Company’s ongoing focus on working capital efficiency.
  • Dow continued to drive shareholder remuneration actions, returning $1.6 billion to shareholders in the quarter through declared dividends and repurchases, and completing its $4.5 billion repurchase program in the period. This quarter, the Company announced a 14 percent dividend increase and expanded its share buyback program by an additional $5 billion.

Comment

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

“Dow achieved a record end to a strong year, with another quarter of year-over-year operating EPS, EBITDA and EBITDA margin growth. This is nine quarters in a row of these metrics increasing year over year. Our operating model of integration with geographic and market diversification showed its superiority during volatile commodity environments, as evidenced by demand growth in most segments. Our strategic decisions continued to drive long-term value across Dow’s integrated, diversified portfolio, while our self-help and productivity measures are firmly delivering cash and lowering costs.

“We are delivering on the commitments we have made – even as we ramped up the pace of investment in our long-term growth projects. In addition, we announced two significant transactions in the quarter in our drive toward delivering our target of $7 billion to $8.5 billion of released value through aggressive portfolio management measures. Collectively, these achievements underscore Dow’s fundamental drive to maximize shareholder value-creation at every turn.”

2014 Full-Year Highlights

  • Dow reported full-year 2014 earnings of $3.11 per share on an adjusted basis, or as-reported earnings of $2.87 per share. This compares with adjusted earnings of $2.48 per share in the prior year – an increase of 25 percent – or $3.68 per share on an as-reported basis.
  • Adjusted EBITDA rose $975 million versus the prior year, reaching a full-year record at $9.3 billion, or $8.9 billion on an as reported basis. Adjusted EBITDA grew in all operating segments. The largest increase was achieved by Performance Plastics, which grew adjusted EBITDA more than $460 million, reflecting the Company’s differentiated product portfolio, diverse markets and global reach. Adjusted EBITDA also rose in Performance Materials & Chemicals – up $225 million – as a result of ongoing steps to enhance productivity.
  • The Company expanded adjusted EBITDA margins 140 basis points, with increases reported in all operating segments. Margin expansion was led by Consumer Solutions (up 214 basis points), Performance Plastics (up 168 basis points), and Infrastructure Solutions (up 141 basis points) on increasing demand, productivity improvements and strategic end-market alignment.
  • For the full year, Dow reported sales of $58.2 billion, up 2 percent versus the prior year. Increases were reported in all geographic areas on an adjusted basis. Sales grew in North America, with revenue in the United States up 4 percent due to sales growth across all operating segments. Emerging geographic regions increased sales 4 percent and represented 35 percent of Dow’s total revenue mix.
  • Research and Development (R&D) expenses and Selling, General and Administrative (SG&A) expenses together decreased $18 million on a full-year basis due to Dow’s focused approach and productivity actions.
  • Dow accelerated portfolio management actions throughout the year, with $2 billion in proceeds expected from divestitures of non-strategic assets and businesses signed or completed in 2014. Since 2013, the Company has signed or completed transactions that are expected to generate $2.9 billion in proceeds – demonstrating progress against its previously stated target.
  • The Company delivered $6.5 billion of cash flow from operations in 2014, demonstrating Dow’s continued focus on productivity. Excluding the K-Dow award, this reflects a more than $320 million increase versus 2013 – representing a second consecutive year of record cash flow.
  • Dow reported adjusted return on capital of 10.8 percent – which represents a 108 basis point increase versus the prior year.
  • The Company reported full-year adjusted equity earnings of $928 million, or $835 million on an as-reported basis. This compares with full-year adjusted equity earnings of $1,044 million, or $1,034 million on an as-reported basis, versus 2013.
  • Certain Items in the year included a gain related to Dow Corning’s implant liability adjustment, a loss related to Dow Corning’s Clarksville, Tenn. site abandonment, asset impairments and other items (See Supplemental Information at the end of the release for a description of Certain Items affecting results.)

 

Three Months Ended

In millions, except per share amounts

Dec. 31,

2014

Dec. 31,

2013

Net Sales

$14,384

$14,386

Adjusted Sales

$14,384

$14,375

 

 

 

Net Income Available for Common Stockholders

$734

$963

Net Income Available for Common Stockholders,

excluding Certain Items

 

$992

 

$793

 

 

 

Earnings per Common Share

$0.63

$0.79

Adjusted Earnings Per Share

$0.85

$0.65

 

 

Twelve Months Ended

In millions, except per share amounts

Dec 31,

2014

Dec 31,

2013

Net Sales

$58,167

$57,080

Adjusted Sales

$58,167

$56,861

 

 

 

Net Income Available for Common Stockholders

$3,432

$4,447

Net Income Available for Common Stockholders,

excluding Certain Items

$3,709

$2,981

 

 

 

Earnings per Common Share

$2.87

$3.68

Adjusted Earnings Per Share

$3.11

$2.48

Review of Fourth Quarter Results

The Dow Chemical Company (NYSE: DOW) reported adjusted earnings per share of $0.85, or $0.63 on an as-reported basis. This compares with adjusted earnings of $0.65 per share in the year-ago period, or $0.79 per share on an as-reported basis.

The Company reported adjusted EBITDA of $2.4 billion, or EBITDA of $2.1 billion. Adjusted EBITDA grew 15 percent versus the year-ago period, with increases reported in every operating segment, led by Agricultural Sciences (up 40 percent), Performance Materials & Chemicals (up 18 percent) and Performance Plastics (up 6 percent).

Adjusted EBITDA margin expanded 218 basis points versus the year-ago period, with increases across all operating segments, as the Company’s integration and targeted end-markets enabled continued price stability in a declining raw material environment. Margin expansion was driven primarily by Agricultural Sciences (up 300 basis points), Consumer Solutions (up 279 basis points) and Infrastructure Solutions (up 203 basis points), due primarily to increased demand for advantaged technologies in key end-markets.

Dow reported sales of $14.4 billion in the fourth quarter, flat versus the same quarter last year, as volume increased in both developed geographies (up 4 percent) as well as emerging geographies (up 5 percent). Volume gains were offset by price declines driven primarily by Western Europe (down 14 percent), which included currency headwinds.

The Company expanded volume in most segments – led by Agricultural Sciences (up 9 percent). Double-digit increases in Epoxy and Polyurethanes drove volume gains in Performance Materials & Chemicals (up 7 percent). Demand also rose in Performance Plastics (up 3 percent).

Research and Development (R&D) expenses and Selling, General and Administrative (SG&A) expenses together decreased $64 million versus the year-ago period, due to Dow’s focused approach and productivity actions.

Dow reported an operating rate of 86 percent for the quarter, up 4 percentage points versus the year-ago period – representing the fifth consecutive quarter of year-over-year operating rate increases. Gains were driven primarily by steady demand in Performance Plastics, coupled with ongoing productivity improvements in Performance Materials & Chemicals. Cash flow from operations was $2.8 billion for the quarter – an increase of more than $500 million versus the year-ago period – demonstrating the Company’s ongoing focus on working capital efficiency.

Certain Items in the quarter included a gain related to Dow Corning’s implant liability adjustment, a loss related to Dow Corning’s Clarksville, Tenn. site abandonment, asset impairments and other items (See Supplemental Information at the end of the release for a description of Certain Items affecting results.).

The Company reported adjusted equity earnings(7) of $221 million, or $128 million as-reported. This compares with adjusted equity earnings of $264 million, or $254 million on an as-reported basis in the same quarter last year.

Dow continued to drive shareholder remuneration actions, returning $1.6 billion to shareholders in the quarter through declared dividends and repurchases, and completing its $4.5 billion repurchase program in the period. This quarter, the Company announced a 14 percent dividend increase and expanded its share buyback program by an additional $5 billion.

Agricultural Sciences

Agricultural Sciences reported record fourth quarter sales of $1.9 billion, up 5 percent versus the year-ago period. Sales gains were broad-based across all geographies, led by growth in Latin America. The segment reported record full-year sales of $7.3 billion, up 2 percent versus the year-ago period driven by the introduction and ramp up of new products and technologies.

Crop Protection reported record fourth quarter sales, up 3 percent versus the year-ago period, driven by broad-based sales gains in all geographies. Higher sales were reported in herbicides, insecticides and fungicides. Sales of new crop protection products increased by 23 percent versus the year-ago period, led by Spinetoram and Isoclast™ insecticides. Crop Protection achieved a full-year sales record.

Seeds also reported record fourth quarter sales, up 9 percent versus the year-ago period, including one-time gains related to the end of DuPont Pioneer’s development of Enlist™ soybeans. On a full-year basis, the business delivered volume growth in soybeans and cotton.

Equity earnings for the segment were $1 million. This compares with a loss of $2 million in the year-ago period. The segment reported record fourth quarter EBITDA of $222 million, up 40 percent versus the same quarter last year, primarily driven by the launch of new products and growth in targeted crops.

Electronic and Functional Materials

Consumer Solutions reported fourth quarter sales of $1.1 billion, flat versus the year-ago period. Double-digit sales gains in North America were offset by sales declines in other geographic areas.

Dow Automotive Systems reported higher sales, due to the continued growth of innovative structural adhesives and strength in North America. In Dow Electronic Materials, gains from continued mobile device growth in Semiconductor Technologies were more than offset by declines in Display Technologies as a result of lower sales in films and filters and OLED materials. Consumer Care reported lower sales primarily due to unfavorable currency while overall demand was comparable to the prior period.

Equity earnings for the segment were $196 million, or $41 million on an adjusted basis. This compares with $30 million in the year-ago period. The segment reported EBITDA of $325 million. Adjusted EBITDA was $243 million, up 15 percent versus the same quarter last year. Strong volume and cost discipline offset price declines, enabling the segment to drive EBITDA growth.

Coatings and Infrastructure Solutions

Infrastructure Solutions reported fourth quarter sales of $2 billion, down 4 percent versus the year-ago period, driven by declines in Europe, Middle East, Africa & India (EMEAI).

Energy & Water Solutions delivered sales gains in all regions, due to strong demand in reverse osmosis and microbial control technologies. Growth was more than offset by long acrylate monomer market conditions and weak Western Europe construction related demand in Dow Building & Construction and Dow Coating Materials.

Equity losses for the segment were $178 million. On an adjusted basis, equity earnings were $70 million, which compares with $40 million in the year-ago period. The segment reported negative EBITDA of $104 million. Adjusted EBITDA was $244 million, up $31 million versus the same quarter last year, as a result of productivity actions and demand growth in attractive markets.

Feedstocks and Energy

Performance Materials & Chemicals reported fourth quarter sales of $3.9 billion, up 5 percent versus the year-ago period, with gains in all geographic regions.

Polyurethanes achieved record fourth quarter sales on double-digit revenue growth with gains in all regions. Strong operational performance enabled growth from solid market demand and ongoing industry supply disruptions. Productivity actions and improving demand in Epoxy delivered double-digit sales gains with growth in all regions. Collectively, these sales gains more than offset declines in Industrial Solutions from fewer projects in concentrated solar power applications, as well as decreased de-icing sales due to warmer weather.

Equity earnings for the segment were $54 million. This compares with $124 million in the year-ago period. The segment reported EBITDA of $636 million, versus EBITDA of $483 million, or $538 million on an adjusted basis in the same quarter last year – up 18 percent, as a result of improved market dynamics coupled with ongoing productivity actions.

Performance Plastics

Performance Plastics reported sales of $3.7 billion, up 2 percent versus the year-ago period. Excluding the impact of divestitures, sales were up 4 percent.

Dow Packaging and Specialty Plastics continued to increase sales in attractive markets, driven by steady growth in flexible food and specialty packaging and double-digit gains in the hygiene and medical and pipe market sectors. Sales in Dow Electrical and Telecommunications and Dow Elastomers declined despite strong market demand in power, telecommunications, transportation and hot-melt adhesives, due to supply limitations resulting from feedstock disruptions and planned maintenance turnarounds.

Equity earnings for the segment were $71 million. This compares with $88 million in the year-ago period. Despite unplanned outages at the Company’s Plaquemine, Louisiana, ethylene production facilities, Performance Plastics reported EBITDA of $1.1 billion, an increase of $57 million versus the same quarter last year. Performance Plastics continued to deliver profitable growth, with EBITDA margins expanding year over year for the eighth consecutive quarter.

Review of Results for 2014

Dow reported full-year 2014 earnings of $3.11 per share on an adjusted basis, or as-reported earnings of $2.87 per share. This compares with adjusted earnings of $2.48 per share in the prior year – an increase of 25 percent – or $3.68 per share on an as-reported basis.

Adjusted EBITDA rose $975 million versus the prior year, reaching a full-year record at $9.3 billion, or $8.9 billion on an as reported basis. Adjusted EBITDA grew in all operating segments. The largest increase was achieved by Performance Plastics, which grew adjusted EBITDA more than $460 million, reflecting the Company’s differentiated product portfolio, diverse markets and global reach. Adjusted EBITDA also rose in Performance Materials & Chemicals – up $225 million – as a result of ongoing steps to enhance productivity.

The Company expanded adjusted EBITDA margins 140 basis points, with increases reported in all operating segments. Margin expansion was led by Consumer Solutions (up 214 basis points), Performance Plastics (up 168 basis points), and Infrastructure Solutions (up 141 basis points) on increasing demand, productivity improvements and strategic end-market alignment.

For the full year, Dow reported sales of $58.2 billion, up 2 percent versus the prior year. Increases were reported in all geographic areas on an adjusted basis. Sales grew in North America, with revenue in the United States up 4 percent due to sales growth across all operating segments. Emerging geographic regions increased sales 4 percent and represented 35 percent of Dow’s total revenue mix.

Research and Development (R&D) expenses and Selling, General and Administrative (SG&A) expenses together decreased $18 million on a full-year basis due to Dow’s focused approach and productivity actions.

Dow accelerated portfolio management actions throughout the year, with $2 billion in proceeds expected from divestitures of non-strategic assets and businesses signed or completed in 2014. Since 2013, the Company has signed or completed transactions that are expected to generate $2.9 billion in proceeds – demonstrating progress against its previously stated target.

The Company delivered $6.5 billion of cash flow from operations in 2014, demonstrating Dow’s continued focus on productivity. Excluding the K-Dow award, this reflects a more than $320 million increase versus 2013 – representing a second consecutive year of record cash flow.

Dow reported adjusted return on capital of 10.8 percent – which represents a 108 basis point increase versus the prior year.

The Company reported full-year adjusted equity earnings of $928 million, or $835 million on an as-reported basis. This compares with full-year adjusted equity earnings of $1,044 million, or $1,034 million on an as-reported basis, versus 2013.

Certain Items in the year included a gain related to Dow Corning’s implant liability adjustment, a loss related to Dow Corning’s Clarksville, Tenn. site abandonment, asset impairments and other items (See Supplemental Information at the end of the release for a description of Certain Items affecting results.).

Outlook

Commenting on the Company’s outlook, Liveris said:

“Against the backdrop of ongoing macroeconomic, currency and energy market uncertainty, we continue to see positive underlying demand fundamentals. Dow is well positioned to continue to optimize returns in this environment: Our advantaged global cost positions are enabling us to increase asset utilization, while selling into higher value sectors. Tightening supply and demand is acting to offset some of the challenges that are a result of falling oil prices.

“Our differentiated technologies and end-market selection will enable us to maximize returns in sectors less susceptible to pricing volatility. Our business model works across all economic cycles, as we can extract value through different parts of our integrated value chains – depending on the cycle. We believe lower oil prices are a relative positive for Dow and a boost for the global economy.

“We will continue to control those factors firmly within our control – demanding operational and commercial excellence, driving proactive portfolio management and productivity actions, executing financial discipline, efficiently managing our cash and investing in people, markets and assets for long-term growth.

“This year will see several major milestones for Dow, with the start-up of the first units in Sadara and our Texas PDH unit in Texas, as well as the controlled launch of Enlist™. As our strategic catalysts continue to gain traction, the advantage they provide will further differentiate Dow against our competitors, fortifying our long-term position and accelerating shareholder remuneration.”

Dow will host a live webcast of its fourth quarter and full-year 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

(1) “Adjusted or operating 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 EBITDA is defined as EBITDA excluding the impact of “Certain Items.”
(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 EBITDA excluding the impact of Certain Items as a percentage of reported sales.
(5) “Adjusted sales” is defined as Net Sales excluding sales related to prior-period divestitures.
(6) “Adjusted Return on Capital” is on a trailing twelve month basis and defined as Adjusted Net Operating Profit After Tax divided by Average Total Capital. “Adjusted Net Operating Profit After Tax” is defined as Adjusted Net Income plus Preferred Stock Dividends plus Net Income Attributable to Noncontrolling Interests plus gross interest expense less tax on gross interest expense. “Adjusted Net Income” is defined as Net Income excluding the impact of “Certain Items.” “Total Capital” is defined as Total Debt plus The Dow Chemical Company’s Stockholders’ Equity plus Redeemable Non-controlling Interest plus Non-redeemable Non-controlling Interests

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.