Dow Inc. · NYSE:DOW
Dow — The Dow Chemical Company — Q1 2010 Earnings Presentation
54 slides from Dow's earnings presentation, Apr 28, 2010
Slide 1: The Dow Chemical Company 1Q 2010 Earnings Conference Call
The Dow Chemical Company 1Q 2010 Earnings Conference Call April 28, 2010
Slide 2: SEC Disclosure Rules
SEC Disclosure Rules Some of our comments today may 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 expect
Slide 3: Agenda
Agenda • Highlights and Accomplishments • Financial Performance • Dow Advanced Materials Update • Outlook and Priorities 3
Slide 4: Top-Line Growth & Broad-Based EBITDA Margin Expansion
Top-Line Growth & Broad-Based EBITDA Margin Expansion • 1Q10 sales and earnings grew year-over-year – Sales(1) up a robust 33% (17% price increase, 16% volume increase) – Reported earnings of $0.41 per share vs. $0.03 per share in 1Q09 – Operating earnings of $0.43 per share(2) vs. $0.11 per share i
Slide 5: Progress on Strategic Path
Progress on Strategic Path • Financial – Broad-based EBITDA(1) margin expansion across the vast majority of the portfolio, both year-over-year and sequentially • Operational – Structural cost reductions of $275 million – Inventory units down 9% compared with 1Q 2009 • Strategic – Exceeded growth syn
Slide 6: Styron Update
Styron Update • Signed definitive agreement for $1.63 billion • Price reflects excellent multiple • Minimal tax leakage • Proceeds will be used to deleverage • Additional supply and service agreements generate substantial value (~$400 million NPV) 6
Slide 7: Industry and Segment Insights
Industry and Segment Insights Demand Recovery 1Q09 4Q09 1Q10 Demand Flat REGION REGION REGION Demand Weakness MIDDLE EAST / AFRICA MIDDLE EAST / AFRICA MIDDLE EAST / AFRICA WESTERN EUROPE WESTERN EUROPE WESTERN EUROPE EASTERN EUROPE EASTERN EUROPE EASTERN EUROPE NORTH AMERICA NORTH AMERICA NORTH AME
Slide 8: Segments: 1Q Strengths & Challenges
Segments: 1Q Strengths & Challenges • Year-over-year volume growth • Infrastructure stimulus in all operating segments spending yet to make full except Health & Ag impact • End-markets tied to consumer • Commercial construction in spending seeing increase in developed regions demand – electronics an
Slide 9: Geographies: 1Q Strengths & Challenges
Geographies: 1Q Strengths & Challenges • Year-over-year volume growth • High unemployment continues in all geographic areas, with to be a drag on recovery in double-digit gains in North developed regions America and EMEA(1) • Sovereign debt uncertainty and • Emerging regions continue tight consumer
Slide 10: 1Q10 Financial Performance
1Q10 Financial Performance Dollars in millions (unless otherwise specified) 1Q10 4Q09 1Q09 Net Sales $13,417 $12,466 $9,041 Pro Forma Net Sales, excluding completed divestitures and recent seed acquisitions(1) $13,392 $12,395 $10,042 Price change in percent 4% 17% Volume change in percent 4% 16% EBI
Slide 11: Year-Over-Year Volume Trends
Year-Over-Year Volume Trends Electronic & 31% • Volume(1) up 16% Specialty Materials Coatings & 16% Infrastructure • Growth in all operating Health & Agricultural -6% segments, except Health Sciences Performance 27% & Ag Systems Performance 27% • Combined Performance Products Basic Plastics 5% segme
Slide 12: Year-Over-Year Price Trends
Year-Over-Year Price Trends Electronic & • Price up 17% Specialty Materials -1% Coatings & 5% Infrastructure • Double-digit price Health & Agricultural -2% Sciences increases across all Performance 3% geographic areas Systems Performance 14% Products – 24% price increase in Basic Plastics 44% EMEA B
Slide 13: Sequential Trends
Sequential Trends Price • Price up 4% North America 8% EMEA 0% • Price up in all geographies, except EMEA Asia Pacific 3% • North America up 8% Latin America 5% Volume • Volume rose 4% North America 11% EMEA 0% 7% • Growth in all operating segments, except Lunar Lunar Basic Plastics and Basic Chemic
Slide 14: Operating Segment View
Operating Segment View Electronic and Specialty Materials • Volume up 31%; robust consumer demand • EBITDA improvements in Electronic & Specialty Materials driven by improved productivity and volume growth • New wins in memory, logic and display technologies • Substantial sales growth in Dow Water a
Slide 15: Operating Segment View
Operating Segment View Health and Agricultural Sciences • Price and volume down, but new Ag Chem molecules continue to ramp up • Growth in all major product lines of Seeds, Traits and Oils • SmartStax™ corn hybrids commercial introduction on track • Phytogen hybrid cotton continues to grow share Per
Slide 16: Operating Segment View
Operating Segment View Basic Plastics • Sales increased 49% driven by volume and substantial price increases • Polyethylene largest contributor to volume and price increases • Low cost basis encouraged exports from North America • EBITDA of $718 million compared to $122 million in 1Q09 Basic Chemica
Slide 17: Equity Earnings Exceed Pre-Recession Levels
Equity Earnings Exceed Pre-Recession Levels Quarterly Average Equity Earnings of Nonconsolidated Affiliates ($ millions, excluding certain items) $350 • Fifth quarter of sequential growth(1) and a record high level $300 $250 • Equity earnings, excluding certain items, improved >$200 million vs. 1Q09
Slide 18: Financial Discipline
Financial Discipline • Working Capital vs. 1Q09 – DSO: Flat at 45 days – DSI: 65 days, down 6 days – Inventory units: down 9% • CapEx: $294 million • Net Debt / EBITDA: Down to 2.8x run-rate • Cost Synergies and Restructuring – $275 million in the quarter – Run-rate of $1.8 billion 18
Slide 19: The Right Innovation Pipeline
The Right Innovation Pipeline $8.2 B Non Risk Adjusted NPV $7.3 B $7.1 B Risk Adjusted NPV $6.0 B $4.6 B $3.0 B $2.2 B $2.3 B $1.4 B $0.6 B Agricultural Advanced Performance Products Hydrocarbon & Corporate Sciences Materials & Energy, Basic Performance Systems Plastics & Basic Chemicals 19
Slide 20: The Right Innovation Pipeline
The Right Innovation Pipeline $17.8 B Non Risk Adjusted NPV Risk Adjusted NPV $6.4 B $6.0 B $5.6 B $3.3 B $3.6 B Exploration Development Implementation Exploration Development Implementation 20
Slide 21: Our Investments Are Yielding Results Today
Our Investments Are Yielding Results Today Dow Building & Construction: Next-Generation STYROFOAM™ Brand Insulation • 60+ years old and still innovating • North America conversion to zero ozone-depleting foaming agent completed • Award-winning, innovative wall systems launched in 2009 Electronic Mat
Slide 22: Acquisition Growth Synergies
Acquisition Growth Synergies $2 Billion Revenue Run-Rate $530 $530 million million revenue revenue run-rate run-rate at at 1Q10 1Q10 Target By Year-End 2012 Growth Synergy Examples • Specialty Materials won 180+ opportunities in 1Q10 $530 million run-rate • Key synergy projects in Building & Constru
Slide 23: Dow Advanced Materials
Dow Advanced Materials Portfolio of High-Growth, High-Margin Businesses Dow Electronic Dow Building & Dow Coating Dow Adhesives & Specialty Functional Materials Construction Materials Polymers Materials Highly sophisticated Leading insulation, Largest supplier of raw Diverse products for Innovative
Slide 24: Key Market Trends and Growth Drivers
Key Market Trends and Growth Drivers Dow Electronic Materials • 30% CAGR for smartphones, netbooks (‘09 – ’14) • >12% CAGR (’09 – ’12) for silicon (MSI) • Photoresist and organic antireflectants growing >10% CAGR (’09 – ’12) • Meeting consumer demands for smaller, faster, lighter electronics Dow Bui
Slide 25: Key Market Trends and Growth Drivers
Key Market Trends and Growth Drivers Dow Adhesives and Functional Polymers • Market pull for high-performance, water-based and solventless solutions • Improved flexible packaging solutions tailored to local consumer preferences • Growing consumption in emerging geographies • Food and healthcare grow
Slide 26: Sector Day 2010: A Winning Formula for Growth
Sector Day 2010: A Winning Formula for Growth Dow Advanced Materials Philadelphia, PA Hyatt at the Bellevue May 18 – 19, 2010 • A deeper review of Dow Advanced Materials • Meet business, technology and marketing leaders • Hear from major customers • Visit over 20 interactive displays featuring Dow’s
Slide 27: Dow Corning: Poised for Continued Success
Dow Corning: Poised for Continued Success • Leading the way in solar material solutions – Reducing total cost of solar energy by increasing durability and performance • Accelerating electronics innovations – Making electronics more powerful, versatile, cost-effective and easier to use • Improving th
Slide 28: Outlook
Outlook • Global economic environment on stronger footing – Demand growth returning to North America and Europe – Strengthening consumer and business spending – Emerging geographies continue to lead recovery – Broad-based manufacturing momentum • Some challenges remain – High unemployment – Commerci
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Slide 30: Appendix
Appendix 30
Slide 31: Electronic & Specialty Materials
Electronic & Specialty Materials Dollars in millions 1Q10 4Q09 1Q09(1) Sales $1,265 $1,223 $971 Price (2)% (1)% Volume 5% 31% EBITDA, excluding Certain Items(2) $389 $402 $122 Equity earnings excluding Certain Item $113 $133 $34 in 1Q09, included in EBITDA(2) (1) Reflects pro forma results for the t
Slide 32: Coatings & Infrastructure
Coatings & Infrastructure Dollars in millions 1Q10 4Q09 1Q09(1) Sales $1,200 $1,178 $1,038 Price 1% 5% Volume 1% 11% EBITDA, excluding Certain Items(2) $121 $108 $122 Equity earnings included in EBITDA $1 - $1 (1) Reflects pro forma results for the three months ended March 31, 2009. (2) See Appendix
Slide 33: Health & Agricultural Sciences
Health & Agricultural Sciences Dollars in millions 1Q10 4Q09 1Q09(1) Sales $1,369 $1,076 $1,461 Price (5)% (2)% Volume 32% (4)% EBITDA $384 $69 $363 Equity earnings included in EBITDA $2 $(1) $1 (1) Reflects pro forma results for the three months ended March 31, 2009. 1Q10 Sales Other 1Q10 Trends vs
Slide 34: Performance Systems
Performance Systems Dollars in millions 1Q10 4Q09 1Q09(1) Sales $1,659 $1,577 $1,281 Price - 3% Volume 5% 27% EBITDA $204 $153 $103 Equity earnings included in EBITDA - $(2) $(3) (1) Reflects pro forma results for the three months ended March 31, 2009. 1Q10 Trends 1Q10 Sales vs. Pro Forma 1Q09 Dow S
Slide 35: Performance Products
Performance Products Dollars in millions 1Q10 4Q09 1Q09(1) Sales $2,804 $2,604 $2,014 Price 3% 14% Volume 5% 25% EBITDA, excluding Certain Items(2) $293 $304 $147 Equity earnings included in EBITDA $7 $4 $1 (1) Reflects pro forma results for the three months ended March 31, 2009. (2) See Appendix fo
Slide 36: Basic Plastics
Basic Plastics Dollars in millions 1Q10 4Q09 1Q09(1) Sales $3,022 $2,889 $2,029 Price 10% 44% Volume (5)% 5% EBITDA, excluding Certain Items(2) $718 $613 $122 Equity earnings excluding Certain Item in 4Q09, included in EBITDA(2) $65 $64 $23 (1) Reflects pro forma results for the three months ended M
Slide 37: Basic Chemicals
Basic Chemicals Dollars in millions 1Q10 4Q09 1Q09(1) Sales $714 $728 $585 Price 10% 6% Volume (12)% 16% EBITDA, excluding Certain Items(2) $120 $14 $(5) Equity earnings included in EBITDA $98 $69 $40 (1) Reflects pro forma results for the three months ended March 31, 2009. (2) See Appendix for Supp
Slide 38: Reconciliation of Non-GAAP Financial Measure
Reconciliation of Non-GAAP Financial Measure Three Months Ended Dollars in millions 3/31/10 12/31/09 3/31/09(1) EBITDA $1,781 $1,346 $766 - Depreciation and Amortization 757 804 756 + Interest income 7 12 15 - Interest expense and amortization of debt discount 376 404 543 Income (Loss) from Continui
Slide 39: Supplemental Information
Supplemental Information Results in the first quarter of 2010 were unfavorably impacted by two items: • Pretax adjustments of $16 million to the 2009 restructuring charge related to additional asset impairments, approximately half of which was related to a consolidated joint venture. The charges are
Slide 40: Supplemental Information
Supplemental Information Results in the first quarter of 2009 were unfavorably impacted by three items: • Net pretax adjustment to the 2008 restructuring charge of $19 million resulting from adjustments to severance, reflected in Corporate. • Pretax charges totaling $48 million for transaction costs
Slide 41: Supplemental Information
Supplemental Information In addition to the items described above for the first quarter of 2009, pro forma results of continuing operations in the first quarter of 2009 were impacted by the following Rohm and Haas items: • Pretax costs totaling $2 million related to Hurricanes Gustav and Ike, which
Slide 42: Supplemental Information
Supplemental Information Results of continuing operations in the fourth quarter of 2009 were impacted by the following items: • Goodwill impairment loss of $7 million related to the Dow Haltermann reporting unit. The loss is shown as “Goodwill impairment losses” in the consolidated statements of inc
Slide 43: Supplemental Information
Supplemental Information Certain Items Impacting Results Pretax Impact on Impact In millions, except per share amounts Impact (1) Net Income (2) on EPS (3) Three Months Ended Three Months Ended Three Months Ended 3/31/10 3/31/09 3/31/10 3/31/09 3/31/10 3/31/09 Restructuring charges $(16) $(19) $(8)
Slide 44: Supplemental Information
Supplemental Information Certain Items Impacting Results Pretax Impact on Impact In millions, except per share amounts Impact (1) Net Income (2) on EPS (3) Three Months Ended Three Months Ended Three Months Ended 12/31/09 12/31/09 12/31/09 Goodwill impairment losses $(7) $(7) $(0.01) Restructuring c
Slide 45: Certain Items Affecting Results
Certain Items Affecting Results Certain items reducing EBITDA by operating segment In millions (unaudited) Three Months Ended Three Months Ended 3/31/10 3/31/09(1) 12/31/09 Electronic & Specialty Materials $(8) $(29) - Coatings & Infrastructure (5) (1) - Health & Agricultural Sciences - - - Performa
Slide 46: 1Q10 Earnings Per Share Reconciliation
1Q10 Earnings Per Share Reconciliation U.S. $ Earnings per common share – diluted $0.41 Restructuring charges 0.01 Integration and other acquisition costs 0.01 Earnings per common share – diluted, excluding certain items $0.43 See Supplemental Information regarding these items. 46
Slide 47: 1Q09 Earnings Per Share Reconciliation
1Q09 Earnings Per Share Reconciliation U.S. $ Earnings per common share – diluted $0.03 Restructuring charges 0.02 Transaction, integration and other acquisition costs 0.04 Dow Corning restructuring 0.03 Earnings per common share – diluted, excluding certain items $0.12 Discontinued operations attri
Slide 48: 4Q09 Earnings Per Share Reconciliation
4Q09 Earnings Per Share Reconciliation U.S. $ Earnings per common share – diluted $0.08 Goodwill impairment losses 0.01 Purchased in-process research and development charges 0.01 Transaction, integration and other acquisition costs 0.03 Equipolymers impairment 0.06 Gain on sale of OPTIMAL (0.01) Ear
Slide 49: Principal Joint Ventures
Principal Joint Ventures Although Dow participates in many joint ventures, the most significant joint ventures from a financial perspective are: Americas Styrenics LLC Compañía Mega S.A. Dow Corning Corporation EQUATE Petrochemical Company K.S.C. Equipolymers The Kuwait Olefins Company K.S.C.(1) MEG
Slide 50: 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) 1Q10 1Q09 1Q10 1Q09 Sales $3,724 $2,556 Sales $1,786 $1,215 Adjusted Sales(1) $2,973 $2,021 Adjusted Sales(1) $1,449 $979 EBITDA(2
Slide 51: Hydrocarbon / Energy Price Index
Hydrocarbon / Energy Price Index U.S. NON U.S. GLOBAL YEAR QTR YTD QTR YTD QTR YTD 1976 100 100 100 1977 103 99 101 1976 = 100 1978 104 100 102 250 1979 116 120 118 1980 137 133 135 1981 145 126 136 1982 143 117 130 230 1983 150 111 129 1984 153 109 129 1985 147 103 123 210 1986 140 102 120 1987 147
Slide 52: Global Operating Rates as a Percent of Capacity
Global Operating Rates as a Percent of Capacity Year QTR YTD 2007 1Q 87% 87% 2Q 86% 87% 3Q 90% 88% 4Q 87% 87% 2008 1Q 86% 86% 2Q 83% 84% 3Q 76% 82% 4Q 64% 77% 2009 1Q 68% 68% 2Q 75% 71% 3Q 78% 74% 4Q 76% 74% 2010 1Q 83% 83% Above operating rate data calculated on fixed cost basis 52
Slide 53: Global Hydrocarbon / Energy Purchased Unit Cost Index
Global Hydrocarbon / Energy Purchased Unit Cost Index QTR YTD 1976 100 1977 110 1978 116 1976 = 100 1979 162 700 1980 218 1981 241 1982 235 1983 233 600 1984 222 1985 205 1986 140 1987 1988 149 147 500 1989 154 1990 174 1991 161 1992 153 400 1993 142 1994 143 1995 150 1996 166 300 1997 166 1998 131
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