| Dow Reports Fourth Quarter and Full-Year Results | |
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Dow Delivers Record Full-Year Revenue of $60 Billion, 19 Percent Increase in Earnings Per Share; Fourth Quarter Revenue |
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Consolidated Statements of Income Sales Volume and Price by Operating Sales Volume and Price by Geographic |
Printable Version of this page (1.1MB PDF) Translations: |
| Earnings Release | |
Fourth Quarter 2011 Highlights
- The Company reported a loss of $0.02 per share, or earnings of $0.25 per share excluding certain items(1). This compares with earnings of $0.37 per share in the year-ago period, or $0.47 per share excluding certain items. Earnings for the quarter were reduced by certain items totaling $0.27 per share, including the recognition of a valuation allowance in Brazil that increased income taxes by $264 million, equivalent to $0.23 per share, resulting in a 76.6 percent effective tax rate.
- Sales were $14.1 billion, up 2 percent versus the same quarter last year. Sales excluding the impact of divestitures increased 5 percent versus the year-ago period, with increases in all geographic areas and in all operating segments except Electronic and Functional Materials, which was flat.
- Sales in emerging geographies were $5 billion, reaching a new quarterly record and representing 35 percent of Dow’s global sales. Sales excluding divestitures rose 10 percent in these regions, with growth across all operating segments.
- Volume declined 3 percent, but was flat excluding the impact of divestitures. On the same basis, volume in emerging geographies grew 7 percent led by China, which was up 12 percent. This increase fully offset declines in Western Europe (down 5 percent) and the United States (down 2 percent).
- Price was up 5 percent, more than offsetting a $476 million increase in purchased feedstock and energy costs. Price was up in all operating segments and in all geographic areas.
- The Company’s operating rate was 72 percent for the quarter, down 9 percentage points year-over-year, reflecting weak demand and customer destocking, particularly in Western Europe.
- Equity earnings were $259 million. For the full year equity earnings totaled $1.2 billion, representing the highest level in the Company’s history.
- EBITDA(2) was $1.4 billion, or $1.6 billion excluding certain items. Agricultural Sciences reported record fourth quarter EBITDA driven by demand growth in Latin America (up 16 percent).
- Net debt(3) to total capitalization declined to 40.8 percent, on target to reach the Company’s 2012 goal. This was primarily due to Dow’s actions during the quarter to improve working capital and operating rates, resulting in the generation of $2.0 billion of cash flow from operating activities.
| (1) | See Supplemental Information at the end of the release for a description of these items. |
| (2) | 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. |
| (3) | Net debt equals total debt (“Notes payable” plus “Long-term debt due within one year” plus “Long-Term Debt”) minus “Cash and cash equivalents.” |
Comment
Andrew N. Liveris, Dow’s chairman and chief executive officer, stated:
“Dow saw deterioration in the macro environment mid-quarter and, in line with our stated commitments, we purposefully intervened. In the midst of uncertainty and significant destocking across customer supply chains, we maintained our focus on financial discipline and operating efficiency – evidenced by our tight management of working capital, focus on improving operating rates and significant cash flow generation.
“We derived strong benefit from our geographic footprint – delivering broad-based top-line gains and achieving record sales for both the quarter and the year in emerging regions, balancing considerable weakness in Western Europe. In addition, our significant U.S. market and feedstock advantage positioned us for success in the quarter and will continue to provide substantial value moving forward.
“Times like these demand a focused approach and strong resolve, and Dow’s firm operating discipline, cost control and productivity will continue throughout 2012. This, together with our broad geographic footprint, balanced and integrated portfolio of businesses, technology-rich innovation engine and world-class feedstock advantage, will enable us to continue to deliver shareholder value.”
2011 Full-Year Highlights
- Dow reported full-year 2011 earnings of $2.05 per share, up 19 percent versus prior-year earnings of $1.72 per share. Excluding certain items, Dow’s full-year 2011 earnings were $2.54 per share, up 29 percent versus the prior-year result on a comparable basis of $1.97 per share.
- Sales reached $60 billion, up 12 percent versus the prior year and a record for the Company. Excluding the impact of divestitures, sales were up 18 percent versus the prior year, with double-digit gains in every geographic area and every operating segment except Electronic and Functional Materials, which was up 9 percent.
- Sales in emerging geographies surpassed $19 billion for the year, achieving a new record for the Company. Sales in Asia Pacific exceeded $10 billion for the first time in the Company’s history. Excluding the impact of divestitures, sales in this region were up 16 percent.
- Volume was down 1 percent. Excluding the impact of divestitures, volume was up 4 percent, with increases in all geographic areas, led by Latin America (up 9 percent) and Asia Pacific (up 6 percent).
- Price was up 13 percent, or 14 percent excluding the impact of divestitures. Double-digit gains were reported in all operating segments except Electronic and Functional Materials (up 6 percent) and Agricultural Sciences (up 5 percent).
- Price gains more than offset a $4.3 billion increase in purchased feedstock and energy costs.
- For the full year, the Company reported EBITDA of $7.8 billion. Excluding certain items, EBITDA totaled $8.4 billion, a 12 percent increase versus 2010. Full-year EBITDA records were achieved in Electronic and Functional Materials, Agricultural Sciences, Performance Materials and Feedstocks and Energy.
- The Company generated nearly $4 billion of cash from operating activities in the year, and reduced its net debt to total capitalization ratio 180 basis points below year-end 2010.
Review of Fourth Quarter Results
The Dow Chemical Company (NYSE: DOW) achieved sales of $14.1 billion in the fourth quarter of 2011, a 2 percent increase compared with the same period last year. Excluding the impact of divestitures, sales increased 5 percent versus the year-ago period, with increases in all geographic areas and in all operating segments except Electronic and Functional Materials, which was flat.
Volume declined 3 percent, but was flat excluding the impact of divestitures. On the same basis, volume increases in Latin America (4 percent) and Asia Pacific (3 percent) offset weak demand in North America and Europe, Middle East and Africa (EMEA), reflecting steep inventory destocking across most value chains.
Price rose 5 percent at a Company level. Price gains were broad-based, with increases in every geographic area, led by North America (6 percent) and Latin America (5 percent). All operating segments reported year-over-year price increases, led by Feedstocks and Energy (up 11 percent).
The Company reported EBITDA of $1.4 billion, or $1.6 billion excluding the impact of certain items. Agricultural Sciences reported record fourth quarter EBITDA, double the level reported in the same period last year, due to strength in Latin America.
Favorable price dynamics allowed the Company to fully offset a $476 million increase in purchased feedstock and energy costs. However, a lower operating rate (72 percent, down 9 percentage points year-over-year) reflected weak demand, and decreased equity earnings drove a decline in EBITDA compared with the same period last year.
The Company reported a loss of $0.02 per share in the quarter. Excluding certain items, the Company reported earnings of $0.25 per share. Certain items in the current quarter consisted of asset impairments and related costs equivalent to $0.05 per share; a charge for a warranty accrual adjustment of an exited business of $0.03 per share; a $0.04 per share gain on the sale of a contract manufacturing business; and a charge related to a tax valuation allowance in Brazil that unfavorably impacted results by $0.23 per share. (See Supplemental Information at the end of the release for a description of certain items affecting results.)
Research and Development (R&D) expenses declined 2 percent versus the same period last year. The Company’s cost-reduction initiatives more than offset continued investments in its technology pipeline, most notably Advanced Materials and Agricultural Sciences.
Selling, General and Administrative (SG&A) expenses were up 7 percent versus the year-ago period, in part due to increased spending to support growth and new product launches in Dow AgroSciences.
Equity earnings were $259 million, a decline of $54 million versus the same period last year. For the full year, equity earnings reached $1.2 billion, representing the highest level in the Company’s history.
Net debt to total capitalization declined to 40.8 percent, 180 basis points below year-end 2010 and on target to reach the Company’s 2012 goal of 40 percent.
Electronic and Functional Materials
Sales in Electronic and Functional Materials were $1.1 billion, flat versus the year-ago period, as a 3 percent decline in volume was offset by a 3 percent increase in price.
Sales in Dow Electronic Materials decreased modestly in the quarter, driven by lower demand in Interconnect Technologies and Semiconductor Technologies. However, the business also reported double-digit volume growth in Display Technologies as new product introductions gained significant momentum. Dow Electronic Materials continued to record several customer wins in the quarter involving display films, organic light-emitting diode materials and chemical mechanical planarization pads and slurries.
Functional Materials sales grew modestly versus the same period last year, as price gains more than offset demand declines driven by above-average year-end inventory destocking by customers, with the largest decline seen in EMEA. Volume declined in all businesses, except Dow Wolff Cellulosics, which grew modestly in resilient end-markets such as pharmaceuticals.
Equity earnings were $32 million, primarily reflecting the contribution from Dow Corning. This result is up slightly from the $30 million reported in the same period last year. EBITDA for the segment was $234 million, which compares with EBITDA of $277 million in the same period last year.
Coatings and Infrastructure Solutions
Sales in Coatings and Infrastructure Solutions were $1.6 billion, up 1 percent compared with the year-ago period. Volume decreased 5 percent, while price rose 6 percent.
Dow Water and Process Solutions reported double-digit volume growth, with increases in all geographic areas. The business saw strong growth in emerging geographies, fueled by gains in ion exchange resins and ultrafiltration. Dow Building and Construction reported increased sales in all geographic areas, led by Latin America and Asia Pacific. While the business continued to experience soft demand conditions in construction end-markets, particularly in developed regions, it was able to implement price actions across all geographic areas. Demand increased in Dow Construction Chemicals, driven by acrylic products in North America. Dow Coating Materials reported sales declines in architectural and industrial coatings due to lower demand globally, partly offset by pricing gains. Sales in the Performance Monomers business declined modestly, as reduced demand from the durable goods industry was partly offset by broad-based price increases in all geographic areas.
Equity earnings were $102 million, largely reflecting the contribution from Dow Corning. This result is up slightly from the $96 million reported in the year-ago period. EBITDA for the segment was $177 million, which was reduced by a $60 million charge related to a warranty accrual adjustment of an exited business. This compares with EBITDA of $251 million in the same period last year.
Agricultural Sciences
Agricultural Sciences reported record fourth quarter sales of more than $1.3 billion, up 5 percent versus the year-ago period. Volume increased 1 percent and price rose 4 percent. The segment also posted record sales for the year of $5.7 billion, driven by increased customer adoption of new products and successful growing seasons in all geographic areas.
Fourth quarter sales of Agricultural Chemicals rose versus the year-ago period, driven by gains in Latin America, which reported 17 percent demand growth in its peak selling quarter. Year-to-date sales of new agricultural chemical products grew more than 20 percent, placing the business on track to exceed its target of $800 million in annual sales from these products by 2013.
Seeds, Traits and Oils (STO) reported a 22 percent sales gain in the quarter versus the year-ago period, driven by a strong growing season in Latin America and increased demand for healthy oils. For the year, STO sales increased 35 percent, with significant gains in key crops, including corn and cotton. In corn, the business continued to report strong farmer demand for SmartStax® hybrids in North America and increased adoption of Herculex® technology in the Americas. Cotton share in the United States increased 5 market share points due to the continued success of Phytogen® seeds.
EBITDA for the segment was $145 million, a fourth quarter record and double the $72 million reported in the year-ago period.
| ® | PhytoGen is a trademark of PhytoGen Seed Company, LLC. |
| ® | SmartStax multi-event technology developed by Dow AgroSciences LLC and Monsanto. SmartStax is a trademark of Monsanto Technology LLC. |
| ® | HERCULEX and the HERCULEX Shield Logo are trademarks of Dow AgroSciences LLC. |
Performance Materials
Sales in Performance Materials were $3.6 billion, up 4 percent compared with the same quarter last year, driven by price gains. Volume was flat, as gains in Asia Pacific and EMEA were offset by declines in Latin America and North America.
Polyurethanes reported a double-digit increase in sales, primarily driven by double-digit volume gains in all geographic areas except Latin America, which was impacted by a turnaround in the quarter. Dow Formulated Systems reported sales gains in all geographic areas except Asia Pacific, which continued to experience weak demand conditions in the wind energy segment. In EMEA, the business reported double-digit sales growth in energy efficiency applications. Epoxy sales contracted in the quarter due to continued softness in phenolics and allylics demand.
Amines reported double-digit volume gains, with increases across all product lines. Polyglycols, Surfactants and Fluids reported a double-digit price gain globally, which more than offset volume declines partially due to warmer winter weather in North America that impacted sales into the de-icer end-market. Price gains in Oxygenated Solvents more than offset weak demand in North America due to customer destocking. Dow Automotive Systems reported price increases that partially offset volume declines across all geographic areas. The business secured several customer wins for its technology-differentiated products used in glass bonding applications.
EBITDA for the segment was $225 million, which was reduced by a $77 million charge for asset impairments and related costs and a $42 million loss on the sale of a contract manufacturing business. This compares with EBITDA of $337 million in the year-ago period, or $449 million excluding certain items in that period.
Performance Plastics
Sales in Performance Plastics were $3.7 billion, down 6 percent from the same quarter last year. Excluding the impact of divestitures, sales increased 5 percent, with a 3 percent gain in volume and a 2 percent increase in price. Strong performance in Dow Elastomers was driven by stable demand in consumer goods, as well as adhesives demand in Europe and recovery from the earthquake in Japan. Polyethylene reported another strong quarter of volume growth in Asia Pacific as it continued to benefit from new capacity in Thailand. Dow Packaging and Converting reported a modest gain in volume, driven by growth in Asia Pacific. Volume declines in Dow Electrical and Telecommunications were partially due to decreased infrastructure investments by state-owned utilities, particularly in Asia Pacific.
Equity earnings for the segment were $32 million, which compares with $72 million in the year-ago period. EBITDA for the segment was $667 million. This compares with EBITDA of $942 million in the same period last year, or $947 million excluding certain items.
Feedstocks and Energy
Sales in Feedstocks and Energy were $2.8 billion, up 14 percent from the same period last year. Volume increased 3 percent and price rose 11 percent. The Chlor-Alkali/Chlor-Vinyl business continued to benefit from favorable conditions in caustic soda, driven by tight supply and strong demand, particularly in the alumina and pulp and paper industries. The business reported a decrease in vinyl chloride monomer volume due to the shutdown of an asset earlier in the year, and ongoing weak fundamentals in construction end-markets. Ethylene Oxide/Ethylene Glycol (EO/EG) sales increased versus the year-ago period, driven by double-digit volume gains.
Equity earnings were $115 million for the quarter, which compares with $113 million in the year-ago period, driven by strong results from MEGlobal and The Kuwait Olefins Company. EBITDA for the segment was $175 million, compared with $152 million in the same period last year.
Review of Results for 2011
For full-year 2011, Dow reported record sales of $60 billion, up 12 percent versus the prior year. Excluding the impact of divestitures, sales rose 18 percent versus the prior year, with double-digit gains in every geographic area and every operating segment except Electronic and Functional Materials, which was up 9 percent.
Sales in the emerging geographies surpassed $19 billion in the year, setting an all-time record for the Company. Sales in Asia Pacific topped $10 billion in the year, also representing a new milestone.
On a reported basis, volume declined 1 percent. Excluding divestitures, volume rose 4 percent, with increases in all geographic areas, most notably in Latin America (up 9 percent) and Asia Pacific (up 6 percent). Volume increased on the same basis in all operating segments except Coatings and Infrastructure Solutions, which declined 1 percent due to continued construction industry weakness.
Price rose 13 percent on a reported basis, or 14 percent excluding divestitures. Double-digit increases were reported across all geographic areas and in all operating segments except Electronic and Functional Materials (up 6 percent) and Agricultural Sciences (up 5 percent). Gains were most notable in Feedstocks and Energy, which posted a year-over-year increase of 27 percent. Overall price increases more than offset a $4.3 billion increase in purchased feedstock and energy costs.
EBITDA for the full year was $7.8 billion. Excluding certain items, EBITDA was $8.4 billion – representing a 12 percent increase versus 2010 on the same basis. Full-year EBITDA records were achieved in Electronic and Functional Materials, Agricultural Sciences, Performance Materials and Feedstocks and Energy.
Dow reported full-year earnings of $2.05 per share, which compares with $1.72 per share in the prior year. Excluding certain items, Dow’s full-year 2011 earnings were $2.54 per share, which represents a 29 percent increase over the prior-year result of $1.97 per share.
Dow’s global operating rate was 80 percent, down 3 percentage points versus 2010, reflecting weak consumer confidence and inventory destocking across most value chains in the fourth quarter of 2011.
The Company continued to invest for growth in 2011. R&D expenses were $1.6 billion, essentially flat with the prior year. SG&A expenses rose 7 percent versus 2010, with investments focused on supporting new product launches and commercial activities in the Company’s downstream, market-driven businesses, including Electronic and Functional Materials and Agricultural Sciences.
Outlook
Commenting on the Company’s outlook, Liveris said:
“We will continue to closely monitor global economic trends and expect challenges in Western Europe to persist in the near term. We do not anticipate material improvements in market conditions for the first quarter of the year, but do project economic recovery will gain momentum as we move through the second quarter and the remainder of the year. Regardless, we will continue to intervene to ensure we deliver against our short- and long-term targets.
“Dow’s downstream, market-driven businesses are poised to capture value from improving North American feedstock dynamics. We maintain our view that ethylene industry operating rates will tighten over the next several years – driving margin expansion.
“Within this context, our priorities reflect our intense focus on execution, and we remain firmly committed to Dow’s growth targets. We will continue to diligently manage our business and control the factors that we can in order to continue to generate healthy cash flow, fund organic growth and remunerate shareholders.”
Dow will host a live Webcast of its fourth 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 connects chemistry and innovation with the principles of sustainability to help address many of the world's most challenging problems such as the need for clean water, renewable energy generation and conservation, and increasing agricultural productivity. Dow's diversified 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 160 countries and in high growth sectors such as electronics, water, energy, coatings and agriculture. In 2011, Dow had annual sales of $60 billion and employed approximately 52,000 people worldwide. The Company's more than 5,000 products are manufactured at 197 sites in 36 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 measures: Dow's management believes that measures of income excluding certain items ("non-GAAP" measures) provide relevant and meaningful information to investors about the ongoing operating results of the Company. Such measurements 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 measures of performance. Reconciliations of non-GAAP measures to GAAP 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.
Download Fourth Quarter 2011 Financial Statements (1.1MB PDF)