Dow Inc. · NYSE:DOW
Dow — The Dow Chemical Company — Q3 2015 Earnings Presentation
48 slides from Dow's earnings presentation, Oct 22, 2015
Slide 1: 3Q 2015 Earnings Conference Call
The Dow Chemical Company 3Q 2015 Earnings Conference Call October 22, 2015 The Dow Chemical Company
Slide 2: SEC Disclosure Rules
SEC Disclosure Rules Some of our comments today include statements about our expectations for the future. Those expectations involve risks and uncertainties. Dow cannot guarantee the accuracy of any forecasts or estimates, and we do not plan to update any forward- looking statements if our expectati
Slide 3: Agenda
Agenda • 3Q 2015 Overview • Segment Results and Outlook • Dow’s Near-Term Focus (Next 24-36 Months) 3
Slide 4: Dow Reports 3Q 2015 Results
Dow Reports 3Q 2015 Results • Operating EPS rises to $0.82 – up 14% YoY • Operating EBITDA reaches $2.4B – up $70MM YoY – Continued margin expansion, demand growth and self-help actions • Operating EBITDA margins expand to 19.6%, up 370 bps YoY • Sales decline 16% YoY; Volume up 2% – Volume driven b
Slide 5: Financial Performance Metrics (on a trailing twelve-month basis)
Financial Performance Metrics (on a trailing twelve-month basis) Operating EPS Operating ROC Dividend Payout Ratio $4.00 12% 70% $3.50 11% $3.00 60% 10% $2.50 9% 50% $2.00 8% $1.50 7% 40% $1.00 6% Yearly declared dividend per share/operating EPS Calculated on dividends declared Target: 10% average a
Slide 6: 3Q15 Financial Performance
3Q15 Financial Performance 3Q15 3Q14 B/(W) Net Sales ($MM) $12,036 $14,405 $(2,369) Sales ex. Acquisitions and Divestitures ($MM) $11,943 $14,269 $(2,326) EBITDA ($MM) $2,923 $2,271 $652 Operating EBITDA ($MM) $2,353 $2,283 $70 EBITDA Margin 24.3% 15.8% +850 bps Operating EBITDA Margin 19.6% 15.8% +
Slide 7: Agenda
Agenda • 3Q 2015 Overview • Segment Results and Outlook • Dow’s Near-Term Focus (Next 24-36 Months) 7
Slide 8: Agricultural Sciences
Agricultural Sciences Continued Strategy Execution in a Challenging Macro Environment Quarterly Financial Performance 3Q14 3Q15 $0 0% Competitive Environment with Weak Commodity Prices • New Crop Protection product sales increased 40% vs SQLY, and 8%, YTD led by -$10 -1% spinetoram insecticide and I
Slide 9: Consumer Solutions
Consumer Solutions Operating EBITDA Growth Driven by Strength in Semiconductor and Automotive Markets Quarterly Financial Performance $310 30% 26% Dow Automotive Systems – Quarterly Operating EBITDA Record $290 24% 25% • Growth in both OEM and aftermarket $270 • Double-digit volume increases in Nort
Slide 10: Infrastructure Solutions
Infrastructure Solutions Value-Add Products Drive Performance; Energy Market and Monomers Stabilizing Quarterly Financial Performance $340 30% Dow Building & Construction – Record Quarterly Operating EBITDA $320 • Margin expansion driven by strength in methyl cellulosics, XPS spray foams, GREAT 25%
Slide 11: Performance Materials & Chemicals
Performance Materials & Chemicals Polyurethanes Delivers Strong Performance; More than Offset by Industrial Solutions Quarterly Financial Performance $700 30% Epoxy / Chlor-Alkali and Vinyl – Operating EBITDA Increases $600 25% • Managed Epoxy pricing despite falling raw material costs, driving impr
Slide 12: Performance Plastics
Performance Plastics Record Performances with High Demand for Dow Products Quarterly Financial Performance $1,400 35% Dow Packaging and Specialty Plastics – Record Quarterly Op. EBITDA 29% $1,200 30% • Record quarterly PE volume, led by packaging sales into emerging markets, $1,000 22% 25% including
Slide 13: Value Chain Ownership Critical to Long-Term Success
Value Chain Ownership Critical to Long-Term Success Sources of Value Vary Over Time Optimizing Integrated Returns Ethane/Naphtha Spread Ethylene/Naphtha Margin PE/Ethylene Margin • Run to maximize integrated volumes 100% – Grow physical capacity – Best-in-class reliability 80% • Americas and Middle
Slide 14: Integrated Polyethylene and Elastomers Balances Remain Favorable
Integrated Polyethylene and Elastomers Balances Remain Favorable Global Ethylene – Demand / Capacity / Operating Rate • Balances expected 500 100% to tighten over next Capacity and Demand (B lbs.) Demand Capacity Operating Rate several years Global Operating Rate 400 95% 300 90% • Oil uncertainties
Slide 15: Modeling Guidance
Modeling Guidance End-markets – YoY volumes expected to be marginally up versus SQLY, ex. acquisitions and divestitures Hydrocarbons and Energy – $100MM up over PQ; down ~$700MM vs SQLY Turnaround costs expected to be flat YoY and $40-60MM lower versus PQ Productivity program – on track to reduce co
Slide 16: Agenda
Agenda • 3Q 2015 Overview • Segment Results and Outlook • Dow’s Near-Term Focus (Next 24-36 Months) 16
Slide 17: 2013-2014 Commitments: Our Priorities Going Forward
2013-2014 Commitments: “Our Priorities Going Forward” Operational Driving costs out and operating rates up Excellence • Productivity target of $1B over 3 yrs Portfolio Make further strategic choices: Go deeper and narrower to drive the next level of long-term growth Management • Divestment target of
Slide 18: Delivering on Our Commitments from 2013-2014
Delivering on Our Commitments from 2013-2014 Commitment Result • Completed $1.75B 2013 productivity program; • $1.75B productivity program (2013) • YTD have completed $208MM of Operational • $1B productivity program 2015-2017 program (2015-2017) Excellence • Increased operating rate 470bps1 • Sell o
Slide 19: Near-Term Focus (Next 24–36 Months)
Near-Term Focus (Next 24–36 Months) Execution focus – continue to grow earnings and cash flow • Dow 10.0 program; $1B of cost reductions in 3 yrs Successfully start-up our large assets in Saudi Arabia and USGC • $2.5B/yr EBITDA from USGC • $500MM/yr equity income from Sadara Drive clarity on future
Slide 20: Dow to Optimize Ownership in Kuwaiti JVs
Dow to Optimize Ownership in Kuwaiti JVs Dow to Reduce Equity Base and Liberate Cash • Phase 1: − EQUATE acquires MEGlobal for total equity consideration of $3.2B ~$2.9B Revenue in 2013 − Dow to receive $1.5B in pre-tax proceeds • Producer of ethylene, PE, ethylene − Expected to close by YE 2015 gly
Slide 21: Near-Term Focus (Next 24–36 Months)
Near-Term Focus (Next 24–36 Months) Execution focus – continue to grow earnings and cash flow • Dow 10.0 program; $1B of cost reductions in 3 yrs Successfully start-up our large assets in Saudi Arabia and USGC • $2.5B/yr EBITDA from USGC • $500MM/yr equity income from Sadara Drive clarity on future
Slide 22: Near-Term Focus (Next 24–36 Months)
Near-Term Focus (Next 24–36 Months) Execution focus – continue to grow earnings and cash flow • Dow 10.0 program; $1B of cost reductions in 3 yrs Successfully start-up our large assets in Saudi Arabia and USGC • $2.5B/yr EBITDA from USGC • $500MM/yr equity income from Sadara Drive clarity on future
Slide 23: De-Commoditized Portfolio
De-Commoditized Portfolio …Since 2009 Ramping Value-Priced Businesses • $15B revenue divested • $1.6B EBITDA divested Low • $17B pre-tax equivalent realized EM Beta Divest RO DAS Invest AgroFresh Elastomers Price PU Systems ANGUS Volatility Acrylics Chain B&C Auto Energy SBH Consumer Care DMC C8 LLD
Slide 24: Near-Term Focus (Next 24–36 Months)
Near-Term Focus (Next 24–36 Months) Execution focus – continue to grow earnings and cash flow • Dow 10.0 program; $1B of cost reductions in 3 yrs Successfully start-up our large assets in Saudi Arabia and USGC • $2.5B/yr EBITDA from USGC • $500MM/yr equity income from Sadara Drive clarity on future
Slide 25: Returning Cash to Our Shareholders
Returning Cash to Our Shareholders Annualized Dividends Declared Dividend Increase to $1.84 per Share $2.00 $1.75 • Higher earnings drive dividends higher $1.50 • New historic dividend level $1.25 $1.00 Cumulative Share Buy-Back ($MM) $10,000 Complete $5B Share Buy-Back $8,000 • $0.5B share buybacks
Slide 26: Dow's Unique Growth Drivers
Dow’s Unique Growth Drivers Low Cost Science + Key Monomers Engineering Markets High-Throughput Packaging Research Catalyst Discovery Transportation Ethylene & Ligand Synthesis Building Blocks Energy/Water Polymer Science Platforms Solutions Electronics Materials Science Consumer Formulation Science
Slide 27: World-Class Unique Capabilities Enable Successful Business Platforms
World-Class Unique Capabilities Enable Successful Business Platforms Catalyst Discovery & Synthesis Formulation High-Throughput Science Research FR-63 Polymeric Analytical Sciences Flame Retardant Process Engineering METEOR™ EO Catalyst Technology Formulation Sciences Spinetoram Materials Science 27
Slide 28: Going Forward
Going Forward • Market outlook favors Dow portfolio • Self-help/Productivity actions will continue • Dow has the team that has delivered, and will continue to do so 28
Slide 29: Market Outlook
Market Outlook • North America remains robust; Europe demand is rising • China demand driven by consumer needs and is growing • Gradual recovery of oil market keeps gas-based cracking advantaged • Other emerging markets showing growth, except Brazil • Plastics chain supply/demand dynamics tightening
Slide 30: Going Forward
Going Forward • Market outlook favors Dow portfolio • Self-help/Productivity actions will continue • Dow has the team that has delivered, and will continue to do so 30
Slide 31: Slide 31
Slide 32: NGL Balances Remain Favorable
NGL Balances Remain Favorable US Ethane Supply / Demand Balance US Propane Supply / Demand Balance 2,750 1,000 2,200 1,500 2,500 800 Propane Exports/(Imports) (MBD) Propane Supply/Demand (MBD) 2,000 1,200 Ethane Surplus / Deficit (MBD) 600 2,250 Ethane Usage (MBD) 400 2,000 1,800 900 200 1,750 0 1,6
Slide 33: Market Pulse – 3Q15 Heat Map
Market Pulse – 3Q15 Heat Map 3Q’15 Up 3X GDP or greater Eastern Europe, ME, Africa, Flat Demand Growth 3Q’15 Down Double digit or greater Western Europe Developing Asia Developed Asia Latin America US & Canada Lower Participation Market >$1B Participation in 2014 India Construction Packaging Relativ
Slide 34: Agricultural Sciences
Agricultural Sciences Dollars in millions 3Q15 3Q14 Sales $1,167 $1,408 Adjusted Sales* $1,151 $1,366 Adj. Price (11%) Adj. Volume (5%) Operating EBITDA ($39) ($15) Equity earnings (included in EBITDA) $2 $1 *Adjusted sales excludes the impact of divestitures and acquisitions. 3Q15 Trends vs. 3Q14 A
Slide 35: Consumer Solutions
Consumer Solutions Dollars in millions 3Q15 3Q14 Sales $1,108 $1,183 Price (8%) Volume 2% EBITDA $289 $283 Equity earnings (included in EBITDA) $14 $34 3Q15 Trends vs. 3Q14 Sales Price Volume Consumer Care $ $ # Dow Automotive Systems $ $ # Dow Electronic Materials $ $ ─ 35
Slide 36: Infrastructure Solutions
Infrastructure Solutions Dollars in millions 3Q15 3Q14 Sales $1,900 $2,167 Price (14%) Volume 2% EBITDA $325 $343 Equity earnings (included in EBITDA) $25 $56 3Q15 Trends vs. 3Q14 Sales Price Volume Dow Building & Construction $ $ # Dow Coating Materials $ $ # Energy & Water Solutions $ $ $ Performa
Slide 37: Performance Materials & Chemicals
Performance Materials & Chemicals Dollars in millions 3Q15 3Q14 Sales $3,142 $3,891 Adjusted Sales* $3,142 $3,797 Adj. Price (17%) Adj. Volume 0% EBITDA $540 $596 Equity earnings (included in EBITDA) $54 $80 *Adjusted sales excludes the impact of divestitures and acquisitions. 3Q15 Trends vs. 3Q14 A
Slide 38: Performance Plastics
Performance Plastics Dollars in millions 3Q15 3Q14 Sales $4,665 $5,686 Adjusted Sales* $4,588 $5,686 Adj. Price (24%) Adj. Volume 5% Adj. Price excluding Hydrocarbons & (16%) Energy Adj. Volume 4% EBITDA $1,349 $1,245 Equity earnings (included in EBITDA) $50 $64 *Adjusted sales excludes the impact o
Slide 39: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Three Months Ended Nine Months Ended In millions 09/30/15 09/30/14 09/30/15 09/30/14 Operating EBITDA $2,353 $2,283 $7,206 $6,921 Certain Items 570 (12) 1,157 (30) EBITDA $2,923 $2,271 $8,363 $6,891 - Depreciation and amortization 645 706 1,921 2,055 + I
Slide 40: Supplemental Information - 3Q15
Supplemental Information - 3Q15 Certain Items Impacting Results In millions, except per share amounts (Unaudited) Pretax Impact (1) Net Income (2) EPS - Diluted (3)(4) Three Months Ended Three Months Ended Three Months Ended 09/30/15 09/30/14 09/30/15 09/30/14 09/30/15 09/30/14 Operating Results - a
Slide 41: Additional Supplemental Information - 3Q15
Additional Supplemental Information - 3Q15 Certain Items Impacting Results In millions, except per share amounts (Unaudited) Pretax Impact (1) Net Income (2) EPS - Diluted (3) (4) Nine Months Ended Nine Months Ended Nine Months Ended 09/30/15 09/30/14 09/30/15 09/30/14 09/30/15 09/30/14 Operating Re
Slide 42: Certain Items Affecting Results- 3Q15
Certain Items Affecting Results- 3Q15 Certain items increasing (decreasing) EBITDA by operating segment In millions Three Months Ended Nine Months Ended 09/30/15 09/30/14 09/30/15 09/30/14 Agricultural Sciences $621 $— $607 $— Consumer Solutions — — (67) — Infrastructure Solutions — — (27) — Perform
Slide 43: Supplemental Information
Supplemental Information Results in the third quarter of 2015 were impacted by the following items: • Pretax gain of $621 million related to the divestiture of the AgroFresh business, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in Agricultural S
Slide 44: Emerging Geographies
Emerging Geographies Dow defines emerging geographies as the following: Eastern Europe, including Russia Asia Pacific, excluding Japan, Australia and New Zealand Latin America India Middle East Africa 44
Slide 45: Principal Joint Ventures
Principal Joint Ventures Although Dow participates in many joint ventures, the most significant joint ventures from a financial perspective are: Dow Corning Corporation EQUATE Petrochemical Company K.S.C. The Kuwait Olefins Company K.S.C. The Kuwait Styrene Company K.S.C. MEGlobal Sadara Chemical Co
Slide 46: Preliminary Results for Principal Joint Ventures
Preliminary Results for Principal Joint Ventures Principal Joint Ventures - Total Dow Proportionate Share Dollars in millions (unaudited) Dollars in millions (unaudited) 3Q15 3Q14 3Q15 3Q14 Sales $4,175 $4,977 Sales $1,867 $2,170 Adjusted Sales(1) $3,204 $3,733 Adjusted Sales(1) $1,471 $1,664 EBITDA
Slide 47: Reconciliation of Equity Earnings
Reconciliation of Equity Earnings 2005 2006 2007 2008 2009 2010 2011 2012 Quarterly Average Equity Earnings excluding certain items $241 $240 $281 $197 $181 $278 $259 $175 Equity Earnings excluding certain items, for the year 964 959 1,122 787 724 1,112 1,137 698 Certain items: Dow Corning Restructu
Slide 48: Global Operating Rates as a Percent of Capacity
Global Operating Rates as a Percent of Capacity Year QTR YTD 2011 1Q 83% 83% 2Q 84% 83% 3Q 83% 83% 4Q 72% 80% 2012 1Q 83% 83% 2Q 78% 81% 3Q 83% 81% 4Q 78% 81% 2013 1Q 82% 82% 2Q 78% 80% 3Q 82% 81% 4Q 82% 81% 2014 1Q 83% 83% 2Q 82% 83% 3Q 88% 85% 4Q 86% 85% 2015 1Q 84% 84% 2Q 84% 84% 3Q 86% 85% 48
The Dow Chemical Company — Q3 2015 Earnings Presentation on 6ix