Dow Inc. · NYSE:DOW
Dow — The Dow Chemical Company — Q3 2012 Earnings Presentation
45 slides from Dow's earnings presentation, Oct 24, 2012
Slide 1: Q3 2012 Earnings Conference Call
Q3 2012 Earnings Conference Call The Dow Chemical Company October 24, 2012 January 4, 2012
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. future. uncertainties Dow cannot guarantee the accuracy of any forecasts or estimates, and we do not plan to update any forward-looking stateme
Slide 3: Agenda
Agenda 3Q 2012 Overview Financial Update Dow’s Growth Trajectory − New, Streamlined Operating Model − $2.5 Billion of Interventions in Motion − Prudent Approach to Innovation & Growth G Focus on Execution: Executive Committee Priorities 3
Slide 4: Dow Delivers EPS of $0.42 Per Share
Dow Delivers EPS of $0.42 Per Share; Sequential Volume Gains, Strong Operating Rate Mitigate Price Declines Earnings per share of $0.42 Sales of $13.6B, adjusted sales down 7% – Broad-based B db d price i d declines li lled dbby E Europe, where h adverse d currency ttotaled t l d >$520MM $520MM
Slide 5: Agenda
Agenda 3Q 2012 Overview Financial Fi i l Update U d t Dow’s Growth Trajectory − New, Streamlined Operating Model − $2.5 Billion of Interventions in Motion − Prudent P d t Approach A h tto Innovation I ti & Growth G th Focus on Execution: Executive Committee Priorities 5
Slide 6: 3Q12 Financial Performance
3Q12 Financial Performance Dollars in millions, except per share amounts 3Q12 3Q11 Net Sales $13,637 $15,109 Adjusted Sales $13,637 $14,642 Adjusted Volume change in percent 2% Adj Adjusted dPPrice i change h iin percent -9% 9% EBITDA $1,798 $2,099 Net Income Available for Common Stockholders $497 $
Slide 7: Drivers of 3Q12 Financial Performance
Drivers of 3Q12 Financial Performance Key Drivers in the Quarter Price declines, currency $0.62 headwinds offset feedstock cost improvements $0.42 $0 q y earnings Equity g decrease,, driven by Dow Corning and ongoing polysilicon weakness Higher tax rate reflects change in geographic mix of ear
Slide 8: Year-Over-Year Volume Trends
Year-Over-Year Volume Trends Electronic & -3% Adjusted volume Functional Materials increased 2% Coatings & 1% I f Infrastructure t t S Solutions l ti Growth in all geographic Agricultural Sciences 7% areas and most operating Performance Materials 4% segments Performance Plastics 5% Performance
Slide 9: Year-Over-Year Price Trends
Year-Over-Year Price Trends Price down 9% Electronic & Functional Materials -5% — 4% due to currency Coatings & -10% 0% I f Infrastructure t t S Solutions l ti $1.2 B decrease in Agricultural Sciences 1% purchased feedstock Performance Materials -11% and energy gy costs Performance Plastics -10%
Slide 10: Operating Segment View
Operating Segment View Electronic and Functional Materials Sales declined 8%; volume down 3%, price down 5% Dow Electronic Materials sales declined across most businesses; fundamentals for smartphones and tablets remain a bright spot despite overall weakness in electronics Functional Materials
Slide 11: Operating Segment View
Operating Segment View Agricultural Sciences Record 3Q sales on strong farmer demand for new technologies YTD new Crop Protection products rose >20% Seeds, Traits and Oils Sales delivered record 3Q sales; YTD growth driven by strong demand in corn, soybeans, healthy oils and cotton Continued
Slide 12: Operating Segment View
Operating Segment View Performance Plastics Sales down 5%; volume up 5%, price down 10%; pricing fundamentals improved as the quarter progressed Adjusted EBITDA margin grew both year-over-year and sequentially Performance Packaging reported volume gains in all geographic areas Dow Elastomers
Slide 13: Additional Financial Highlights
Additional Financial Highlights Year-over-year working capitalization* improved $200MM Cash from operations improved >$650MM YTD vs vs. prior year − Delivered $1.1B in cash from operations in the quarter Pension contributions of ~$340 MM − Now at >90% of expected 2012 contributions Debt decl
Slide 14: Agenda
Agenda 3Q 2012 Overview Financial Fi i l Update U d t Dow’s Growth Trajectory − New, Streamlined Operating Model − $2.5 Billion of Interventions in Motion − Prudent P d t Approach A h tto Innovation I ti & Growth G th Focus on Execution: Executive Committee Priorities 14
Slide 15: Dow's Earnings Growth Trajectory
Dow’s Earnings Growth Trajectory Margin Expansion / Organic Growth Equity Earnings Growth Synergies / Innovation Addressing the gap $10B $8.4B $7.5B $5.5B 2009 2010 2011 Near Term 15
Slide 16: New Operating Model Accelerates Earnings Growth
New Operating Model Accelerates Earnings Growth Structural changes to maximize the power of Dow Upgrade Dow’s Reduce hand‐offs, Increase value chain focus, position maximize integration monetize innovation Market Focus Feedstocks Chemical Envelopes (Electronics, Ag, Coatings, (C2, C3, Cl2, EO, etc.)
Slide 17: Multi-Pronged Approach to Drive Cost Reductions
Multi-Pronged Approach to Drive Cost Reductions Total Levers: $2.5B Pulling $2.5B of Levers $200MM reduction in $1B growth spend Accelerating existing programs Decrease D − 1Q12 restructuring t t i in i motion ti $700MM CapEx CapEx & Growth reduction in 2013* − EFG approaching YE goal Spending $10
Slide 18: Accelerating Cost and Cash Interventions
Accelerating Cost and Cash Interventions Total Levers: $2.5B Delivering Results Target Savings ($MM) Cost Interventions (Run Rate) Restructuring $1,000 Cash Interventions (Cumulative) $1B programs p g to deliver $900 Decrease cost elimination CapEx & Growth against 2011 YE $800 Spending baseline $
Slide 19: Cost and Cash Interventions: 2013 Impact
Cost and Cash Interventions: 2013 Impact 1Q12 Restructuring savings $100MM Cost 4Q12 Restructuring R t t i savings i $200MM EBITDA Growth spending reduction $100MM Impact Savings Discretionary spending reduction $100MM $500MM Cash Adjust CapEx investment to reflect near-term market CapEx
Slide 20: Prioritizing Growth Investments: Sadara
Structural changes to maximize the power of Dow Prioritizing Growth Investments Upgrade Dow’s position Reduce hand‐offs, maximize integration Increase value chain focus, monetize innovation Market Focus Feedstocks Chemical Envelopes (Electronics, Ag, Coatings, (C2, C3, Cl2, EO, etc.) Water, Packagin
Slide 21: Prioritizing Growth Investments
Structural changes to maximize the power of Dow Prioritizing Growth Investments Upgrade Dow’s position Reduce hand‐offs, maximize integration Increase value chain focus, monetize innovation Market Focus Feedstocks Chemical Envelopes (Electronics, Ag, Coatings, ((C2, C3, Cl2, EO, etc.)) Water Packagi
Slide 22: Driving Margin Improvements
Driving Margin Improvements Normalized Normalized Trailing 4 Quarters Operating Segment Revenue EBITDA Adjusted EBITDA Growth Target Margin Target Margin Electronic & Functional 2x GDP ~25% 24% Materials Coatings & Infrastructure 1.5x GDP 20-25% 16% Solutions Agricultural 1.5x GDP ~25% 16% Sciences
Slide 23: Agenda
Agenda 3Q 2012 Overview Financial Fi i l Update U d t Dow’s Growth Trajectory − New, Streamlined Operating Model − $2.5 Billion of Interventions in Motion − Prudent P d t Approach A h tto Innovation I ti & Growth G th Focus on Execution: Executive Committee Priorities 23
Slide 24: Executive Committee Actions to Deliver Growth
Executive Committee Actions to Deliver Growth Accelerate actions to drive down costs, increase cash − Expanding target to $2.5B − Full array of interventions underway − Primarily focused in Europe Prioritize growth investments − Halt funding for projects impacted by revised market outlook − Dela
Slide 25: Dow Investor Forum 2012
Dow Investor Forum 2012 New York, NY • December 3, 2012 • Updates p on key y near-term milestones • Insights into EBITDA, ROC and cash targets • For more information: ir@dow.com 25
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Slide 27: Appendix
Appendix 27
Slide 28: Electronic & Functional Materials
Electronic & Functional Materials Dollars in millions 3Q12 3Q11 Sales $1,111 $1, 205 Price (5)% Volume (3)% EBITDA $273 $306 Equity earnings (included in EBITDA) $27 $23 3Q12 Sales 3Q12 Trends vs. 3Q11 Dow Electronic D El i S l Sales Pi Price V l Volume Materials Dow Electronic Materials Funct
Slide 29: Coatings & Infrastructure Solutions
Coatings & Infrastructure Solutions Dollars in millions 3Q12 3Q11 Sales $1,730 $1,905 Price (10)% Volume 1% EBITDA $246 $372 Equity earnings (included in EBITDA) $29 $72 3Q12 Sales 3Q12 Trends Performance Dow Building & vs. 3Q11 Monomers Construction S l Sales Pi Price V l Volume Dow Building & Cons
Slide 30: Agricultural Sciences
Agricultural Sciences Dollars in millions 3Q12 3Q11 Sales $1,302 $1,205 Price 1% V l Volume 7% EBITDA $63 $75 Equity earnings (included in EBITDA) $3 - 3Q12 Trends vs. 3Q11 Sales Price Volume Crop Protection Seeds, Traits and Oils 30
Slide 31: Performance Materials
Performance Materials Dollars in millions 3Q12 3Q11 Sales $3,411 3,698 Price (11)% Volume 3% Volume (excluding divestitures) 4% EBITDA $491 $478 Equity losses (included in EBITDA) $(30) $(11) 3Q12 Trends vs. 3Q11 Sales Price Volume Amines 3Q12 Sales Chlorinated Organics Dow Automotive Sy
Slide 32: Performance Plastics
Performance Plastics Dollars in millions 3Q12 3Q11 Sales $3,500 $4,114 Price (9)% Volume (6)% Volume (excluding divestitures) 5% EBITDA $737 $834 Equity earnings (included in EBITDA) $28 $150 3Q12 Sales 3Q12 Trends Dow Elastomers vs. 3Q11 Dow Electrical & Telecommunications S l Sales Pi Price V l Vo
Slide 33: Feedstocks & Energy
Feedstocks & Energy Dollars in millions 3Q12 3Q11 Sales $2,521 $2,905 Price (12)% V l Volume (1)% EBITDA $200 $263 Equity earnings (included in EBITDA) $123 $153 3Q12 Trends vs. 3Q11 3Q12 Sales Chlor‐ S l Sales Pi Price V l Volume Alkali/Chlor‐ Chlor-Alkali/Chlor-Vinyl Vinyl Energy EO/EG
Slide 34: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Three Months Ended Dollars in millions 09/30/12 09/30/11 EBITDA $1 798 $1,798 $2 099 $2,099 - Depreciation and amortization 665 714 + Interest income 10 9 - Interest expense and amortization of debt discount 318 305 Income Before Income Taxes $825 $1,089
Slide 35: Supplemental Information- 3Q
Supplemental Information- 3Q Certain Items Impacting Results In millions, except per share amounts (unaudited) Pretax Impact (1) Net Income (2) EPS - Diluted (3) Three Months Ended Three Months Ended Three Months Ended 09/30/2012 09/30/2011 09/30/2012 09/30/2011 09/30/2012 09/30/2011 Adjusted to exc
Slide 36: Certain Items Affecting Results- 3Q
Certain Items Affecting Results- 3Q Certain items increasing EBITDA by operating segment In millions Three Months Ended 09/30/12 09/30/11 Electronic and Functional Materials - - Coatings and Infrastructure Solutions - - Agricultural Sciences - - Performance Materials - - Performance Plastics - 86 Fe
Slide 37: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Nine Months Ended Dollars in millions 09/30/12 09/30/11 EBITDA $5 466 $5,466 $6 373 $6,373 - Depreciation and amortization 2,018 2,142 + Interest income 26 26 - Interest expense and amortization of debt discount 959 1,010 Income Before Income Taxes $2,51
Slide 38: Supplemental Information- YTD
Supplemental Information- YTD Results for the nine-month period ended September 30, 2012 were unfavorably impacted by two items: • Pretax restructuring charges of $357 million. On March 27, 2012, the Company’s Board of Directors approved a restructuring plan as part of a series of actions to optimiz
Slide 39: Supplemental Information- YTD
Supplemental Information- YTD Certain Items Impacting Results In millions, except per share amounts (unaudited) Pretax Impact (1) Net Income (2) EPS - Diluted (3) Nine Months Ended Nine Months Ended Nine Months Ended 09/30/2012 09/30/2011 09/30/2012 09/30/2011 09/30/2012 09/30/2011 Adjusted to exclu
Slide 40: Certain Items Affecting Results- YTD
Certain Items Affecting Results- YTD Certain items increasing (decreasing) EBITDA by operating segment In millions Nine Months Ended 09/30/12 09/30/11 Electronic and Functional Materials $(17) - Coatings and Infrastructure Solutions $(41) - Agricultural Sciences - - Performance Materials $(186) - Pe
Slide 41: Emerging Geographies
Emerging Geographies Dow defines emerging geographies as the following: Eastern Europe, p includingg Russia Asia Pacific, excluding Japan, Australia and New Zealand Latin America India Middle East Africa 41
Slide 42: Principal Joint Ventures
Principal Joint Ventures Although Dow participates in many joint ventures, the most significant joint ventures from a financial perspective are: Compania MEGA S.A. Dow Corning Corporation EQUATE Petrochemical Company K.S.C. Th Kuwait The K it Ol Olefins fi C Company K K.S.C. SC MEGlobal The SCG-Dow
Slide 43: Preliminary Results for Principal Joint Ventures
Preliminary Results for Principal Joint Ventures Principal Joint Ventures - Total Dow Proportionate Share Dollars in millions (unaudited) 3Q12 3Q11 Dollars in millions (unaudited) 3Q12 3Q11 Sales $3,788 $4,015 Sales $1,845 $1,958 Adjusted Sales(1) $2,927 $3,022 Adjusted Sales(1) $1,440 $1,493 EBITDA
Slide 44: Reconciliation of Equity Earnings
Reconciliation of Equity Earnings 2002 2003 2004 2005 2006 2007 2008 2009 Quarterly Average Equity Earnings excluding certain items $10 $81 $231 $241 $240 $281 $197 $181 Equity Earnings excluding certain items, items for the year 40 322 923 964 959 1,122 787 724 Certain items: Dow Corning Restructur
Slide 45: Global Operating Rates as a Percent of Capacity
Global Operating Rates as a Percent of Capacity Year QTR YTD 2009 1Q 68% 68% 2Q 75% 71% 3Q 78% 74% 4Q 76% 74% 2010 1Q 83% 83% 2Q 80% 82% 3Q 86% 83% 4Q 81% 83% 2011 1Q 83% 83% 2Q 84% 83% 3Q 83% 83% 4Q 72% 80% 2012 1Q 83% 83% 2Q 78% 81% 3Q 83% 81% 45
The Dow Chemical Company — Q3 2012 Earnings Presentation on 6ix