Dow Reports First Quarter Results
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Dow CFO Analyzes 1st Quarter Earnings |
Comment
Andrew N. Liveris, Dow’s chairman and chief executive officer, stated:
“Dow delivered an exceptionally good quarter, in which broad-based pricing initiatives, growth in our Performance businesses, especially Dow AgroSciences, and our strong international presence counterbalanced ongoing weakness in the United States, and an unprecedented increase in purchased feedstock and energy costs. Add in consistently robust contributions from joint ventures, and you can see all elements of our strategy at work as we continue our transformation to an earnings-growth company.”
Review of First Quarter Results
The Dow Chemical Company (NYSE: DOW) reported sales of $14.8 billion for the first quarter of 2008, 19 percent higher than in the same period last year, setting another quarterly sales record.
Net income for the quarter was $941 million. This compares with net income of $973 million in the first quarter of 2007. Dow reported earnings for the current quarter of $0.99 per share, which compares with earnings in the first quarter of 2007 of $1.00 per share.
Price was 17 percent higher than in the first quarter of 2007, with increases in all operating segments, and double-digit increases in all geographic areas. These price gains offset significant increases in purchased feedstock and energy costs, which were $2.2 billion higher than the same period last year, an increase of 42 percent.
Year over year, volume was up 2 percent. In the combined Performance segments, volume increased 6 percent. Strong demand in Asia Pacific, Latin America, and the India, Middle East and Africa (“IMEA”) region, coupled with modest volume gains in Europe, more than offset continued weakness in North America.
Selling, Administrative and Research and Development expenses increased from the same period last year, reflecting recent acquisitions in Performance businesses and planned investments in R&D, and marketing and sales focused on growth, in line with the Company’s strategic direction.
Equity earnings for the quarter were $274 million, marking the fifth consecutive quarter in which equity earnings exceeded $250 million.
“Dow delivered an exceptionally good quarter, in which broad-based pricing initiatives, growth in our Performance businesses, especially Dow AgroSciences, and our strong international presence counterbalanced ongoing weakness in the United States, and an unprecedentedincrease in purchased feedstock and energy costs,” said Andrew N. Liveris, Dow’s chairman and chief executive officer. “Add in consistently robust contributions from joint ventures, and you can see all elements of our strategy at work, as we continue our transformation to an earnings-growth company.”
Performance Plastics
In the Performance Plastics segment, first quarter sales of $4.0 billion represented a 12 percent increase over the same period last year. Price moved up 9 percent, and volume increased 3 percent. Price was up in all geographic areas, and volume rose in Asia Pacific, Latin America and IMEA. Recent acquisitions in Polyurethane Systems contributed to double-digit volume growth, increasing Dow’s presence in fast-growing applications such as insulation for pipelines and oil and gas tankers. Specialty Plastics and Elastomers (“SP&E”) reported strong demand for ENGAGE™ elastomers in automotive applications, and AFFINITY™ polyolefin plastomers in hot melt adhesives and eco-friendly carpet backings. Despite the implementation of significant price increases, SP&E was not able to fully recover large run-ups in hydrocarbon and energy costs, which pressured margins. Dow Epoxy recorded lower volumes reflecting the exit of the peroxymeric chemicals business in 2007, as well as the decision by the business to reduce sales of epoxy intermediates in the face of declining industry margins due to additional industry capacity. First quarter EBIT for Performance Plastics was $329 million, compared with $441 million in the first quarter of 2007.
Performance Chemicals
Sales in Performance Chemicals increased to $2.3 billion for the quarter, a gain of 16 percent compared with $2.0 billion posted in the same period last year. Globally, price was up 9 percent while volume increased 7 percent. Price increased in all businesses and in all geographic areas. Strong volume gains were reported in Europe, Asia Pacific, Latin America and IMEA. Designed Polymers posted price and volume gains in all geographic areas,due in part to strong demand in pharmaceutical and food applications in Dow Wolff Cellulosics, and strength in Dow Water Solutions, which reported growing demand for reverse osmosis membranes and ion exchange resins. Demand for biocides used in oilfield applications showed continued strength, as oil extraction activities in North America and Latin America remained at high levels. Dow Emulsion Polymers reported good demand growth, but substantial margin compression for latex in coated paper and carpet applications, as pricing initiatives in the quarter were not enough to offset large cost increases in butadiene and other key raw materials. Equity earnings in the segment were $95 million, down $10 million on lower contributions from Dow Corning due to a short-term spike in raw material costs. Performance Chemicals reported EBIT of $271 million for the quarter, compared with $312 million for the same period last year.
Agricultural Sciences
The Agricultural Sciences segment posted record sales of $1.3 billion, 27 percent higher than the same period last year, as Dow AgroSciences continued to implement its growth strategy. Results reflected organic growth and growth from recent acquisitions, with ongoing favorable conditions in the global agricultural and food industry. Price was up 11 percent, with increases in all geographic areas and particular strength in Europe and Latin America. Volume was up 16 percent compared with the same period last year, with double-digit increases in Europe, Asia Pacific and Latin America. The Seeds business recorded sales increases in corn seeds in Brazil, while higher agricultural chemical sales reflected Dow AgroSciences’ very strong portfolio of cereal herbicides. Sales of new herbicides - penoxsulam for rice and aminopyralid for range and pasture - also increased due to additional product launches in new geographies. The recent acquisitions of Agromen, MTI and Duo Maize continue to perform well, and the integration of newly acquired Triumph Seeds is underway. First quarter EBIT for Agricultural Sciences was $331 million, compared with $282 million in the year ago period.
Basic Plastics
Basic Plastics sales rose 21 percent in the first quarter to $3.5 billion, up from $2.9 billion in the same period last year. Price increased 24 percent, and was up in all businesses and in all geographic areas. Volume decreased 3 percent, due in part to shutdowns of polypropylene capacity in St. Charles, Louisiana in the fourth quarter of 2007, and the sale of polyethylene assets in Cubatão, Brazil in the second quarter of 2007. Polyethylene reported slightly lower demand in North America, as softer industry fundamentals and customer inventory corrections took hold. Demand for polypropylene was down substantially due to lower consumer spending on durables and housewares, and slowdowns in the housing and automotive sectors in North America. Polystyrene margins were under pressure throughout the quarter, as costs for raw materialsincreased. Equity earnings were $42 million, down $12 million as higher earnings at EQUATE were more than offset by decreases at Equipolymers and Siam Polyethylene. EBIT for Basic Plastics was $427 million compared with $527 million in the same period last year.
Basic Chemicals
Basic Chemicals sales for the quarter increased 23 percent year over year to $1.6 billion, compared with $1.3 billion in 2007. The segment recorded a 26 percent gain in price, and a 3 percent decline in volume. Volumes were negatively impacted by the sale of the caustic soda business in Western Canada in December 2007.Caustic soda benefited from favorable industry supply/demand fundamentals, with price at levels not seen since 2005. However, demand for vinyl chloride monomer used in polyvinylchloride (“PVC”) production declined as end-use applications for PVC, such as pipe and residential building and construction applications, remained soft. Margins in the Ethylene Oxide/Ethylene Glycol (“EO/EG”) business improved, with price up significantly from a year ago, but down from the record highs seen in the fourth quarter of 2007. Volume in EO/EG was up as well, but was hampered by outages at Seadrift, Texas, and St. Charles, Louisiana. Equity earnings in Basic Chemicals were up $22 million year over year to $97 million, on strong results at MEGlobal, EQUATE and OPTIMAL. EBIT increased $25 million to $159 million, compared with $134 million in the first quarter of 2007.
Outlook
Commenting on the Company’s outlook, Liveris said: “Our outlook continues to reflect a strong international economy and a robust agricultural sector, which should counterbalance a soft U.S. economy. With more than two-thirds of Dow’s sales and over 70 percent of our joint venture sales outside of the United States, our geographic balance provides a hedge against a further U.S. slowdown. With ongoing strength in our joint ventures, growth in our Performance businesses, particularly Dow AgroSciences, and a strong focus on financial discipline and price/volume management, we expect the second quarter to be another good quarter for Dow.”
Dow will host a live Webcast of its first quarter earnings conference call with investors to discuss its results, business outlook and other matters today at 10:00 a.m. ET on www.dow.com.
Dow will also host a live Webcast of its Annual Meeting of Stockholders on Thursday, May 15, 2008, at 10:00 a.m. ET on www.dow.com.
(1) Earnings before interest, income taxes and minority interests (“EBIT”). A reconciliation of EBIT to “Net Income Available for Common Stockholders” is provided following the Operating Segments table.
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About Dow
With annual sales of $54 billion and 46,000 employees worldwide, Dow is a diversified chemical company that combines the power of science and technology with the “Human Element” to constantly improve what is essential to human progress. The Company delivers a broad range of products and services to customers in around 160 countries, connecting chemistry and innovation with the principles of sustainability to help provide everything from fresh water, food and pharmaceuticals to paints, packaging and personal care products. 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
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.
Download First Quarter 2008 Financial Statements in PDF format (67KB PDF)
