The Dow Chemical — Q3 2009 Earnings Presentation
49 slides from The Dow Chemical's earnings presentation, Oct 22, 2009
Slide 1: 3Q 2009 Earnings Conference Call
The Dow Chemical Company 3Q 2009 Earnings Conference Call October 22, 2009 3Q09 Earnings Conference Call
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 Key Messages 3Q09 Business Performance & Trends Financial Update Outlook & Priorities 3Q09 Earnings Conference Call – Page 3
Slide 4: Key Messages
Key Messages Another sequential earnings improvement ̶ Operating earnings of $0.24 per share ̶ Led by Electronic & Specialty Materials and Basic Plastics ̶ Strong rebound in emerging geographies ̶ Price up 6% 10% volume growth in China vs. 3Q08 Cash provided by operating activities was $600+ m
Slide 5: Geographic Trends
Geographic Trends Strengths ̶ Greater China, Southeast Asia, India, Latin America and the Middle East are clear bright spots ̶ China stimulus programs having a noticeable impact ̶ Brazil has rebounded quickly Challenges ̶ Challenges remain in the U.S. and Western Europe ̶ Unemployment and reduce
Slide 6: Industry / Segment Outlook is Improving
Industry / Segment Outlook is Improving June 2009 September 2009 OPERATING SEGMENT OPERATING SEGMENT Electronics & Specialty Mat’ls Electronic & Specialty Mat’ls Coatings & Infrastructure Coatings & Infrastructure Health & Ag. Sciences Health & Ag. Sciences Performance Products Performance Products
Slide 7: Operating Segment View
Operating Segment View Electronic & Specialty Materials ̶ EBITDA margins greater than 30% ̶ Foundry utilization rates greater than 90% ̶ Double-digit volume increase in Asia Pacific for Electronic Materials vs. 2Q09 ̶ Large desalination projects drive growth for Dow Water & Process Solutions Coa
Slide 8: Operating Segment View
Operating Segment View Health & Agricultural Sciences ̶ Year-over-year results impacted by lower commodity prices, industry oversupply of glyphosate, and shift in farm economics in Brazil that favored soybeans versus corn ̶ SmartStax™ achieved two significant regulatory milestones ̶ PhytoGen reach
Slide 9: Operating Segment View
Operating Segment View Basic Plastics ̶ Polyethylene showing resiliency ̶ Polyethylene reported strong sequential price increases in all geographies ̶ Polyethylene export window from North America to Asia Pacific remained open Basic Chemicals ̶ Headwinds remain, margins improving ̶ Rightsizing f
Slide 10: 3Q09 Financial Performance
3Q09 Financial Performance Dollars in millions (except per share amounts) 3Q09 2Q09 3Q08 Net Sales $12,046 $11,322 $15,371 Pro Forma Net Sales $12,046 $11,322 $17,839 Price 6% (23)% Volume -% (9)% EBITDA(1) $2,237 $596 $1,612 EBITDA, excluding Certain Items(1,2) $1,555 $1,553 $1,835 Earnings (Loss)
Slide 11: 3Q09 Financial Highlights
3Q09 Financial Highlights 3Q09 sales were $12.0 billion, down 32% vs. pro forma 3Q08 sales ̶ Volume declined 9%; price down 23% 3Q09 sales increased 6% vs. 2Q09 ̶ Price up 6%; volume was flat ̶ Excluding Dow AgroSciences, volume increased more than 3% Excluding Ag, EBITDA(1) excluding certain
Slide 12: 3Q09 Earnings Per Share Reconciliation
3Q09 Earnings Per Share Reconciliation U.S. $ Earnings per common share – diluted $0.63 Gain on sale of TRN and OPTIMAL (0.46) Transaction, integration and other acquisition costs 0.03 Loss on early extinguishment of debt 0.03 Earnings per common share – diluted, excluding certain items $0.23 Discon
Slide 13: Sequential Price Trends
Sequential Price Trends • Price up 6% vs. Electronic & Specialty 1% 2Q09 overall Materials Coatings & Infrastructure 3% Health & Agricultural -2% Sciences • Price up across all geographic areas vs. Performance Systems 3% 2Q09 Performance Products 6% Basic Plastics 13% • Double-digit price Basic Chem
Slide 14: Sequential Volume Trends
Sequential Volume Trends • Volume flat vs. 2Q09 Electronic & Specialty 7% overall Materials Coatings & Infrastructure 4% • Excluding Dow Performance Systems 2% AgroSciences, Performance Products 10% volume up more than 3% vs. 2Q09 Basic Plastics -2% ¾ Health & Ag. Basic Chemicals -1% Sciences volume
Slide 15: Operating Rate Trend
Operating Rate Trend • Operating rate was 95% 78% in 3Q09 90% 90% 88% 87% 87% 87% • First time above 75% 84% 87% 86% 85% since 3Q08 85% 85% 86% 83% 82% 84% 84% 80% 78% 78% • Favorable feedstock 77% 76% 75% 76% 75% and energy costs in North America 70% relative to other 68% geographies 65% supported
Slide 16: Equity Earnings A Strong Quarterly Contributor
Equity Earnings A Strong Quarterly Contributor Results up 84% vs. 2Q09 to $224 million Driven by results in Dow Corning ̶ 18% sequential improvement in silicones sales ̶ Broad-based improvement in many end-markets EQUATE ̶ Cost-advantaged feedstock position Equity earnings approaching normal
Slide 17: Cost Control
Cost Control Reduced structural costs more than $1 billion YTD ̶ More than $380 million achieved in 3Q09 Selling, General and Administrative (SG&A) expenses down $102 million vs. pro forma 3Q08 SG&A Capital spending YTD was $894 million on a pro forma basis ̶ Remain on track to achieve capital
Slide 18: Acquisition Cost Synergy Update
Acquisition Cost Synergy Update Achieved 112% of 12-month run rate target 2-year Target $780 Qtr-end 3Q09 Run Rate $876 $1,300 YTD Realized $433 $650 Savings $ million Achieved by 3Q09 Qtr-end 12-Month Target 3Q09 Earnings Conference Call – Page 18
Slide 19: Cost Synergy YTD Realized Savings
Cost Synergy YTD Realized Savings Achieved $433 million YTD realized savings Purchasing, Incl. Raw Materials $213 Shared Services & Governance $88 Rohm and Haas Announced Restructurings $79 Mfg / Supply Chain $47 $6 Corp. Business Dev. Overlap $ million YTD Realized Savings 3Q09 Earnings Conference
Slide 20: Cost Synergy Categories Run Rate
Cost Synergy Categories Run Rate $390 Purchasing, Incl. Raw Materials $428 Shared Services & Governance $201 $380 Mfg / Supply Chain $105 $280 Rohm and Haas $121 $200 Announced Restructurings $21 Corp. Business Dev. Overlap $50 $ million Run Rate at 3Q09 Qtr-end Commitment 3Q09 Earnings Conference C
Slide 21: Dow 4Q08 Restructuring Update
Dow 4Q08 Restructuring Update Achieved 81% of 12-month run rate target 2-year Target Qtr-end 3Q09 Run Rate $404 $500 $750 YTD Realized $222 $305 Savings $ million Achieved by 3Q09 Qtr-end 12-Month Target 3Q09 Earnings Conference Call – Page 21
Slide 22: Workforce Reductions Update
Workforce Reductions Update Headcount Reduction Target (excl. divestitures) Separated 6,151 8,000 Separations completed 6,151 Target (Excluding 8,000 Divestitures) 3Q09 Earnings Conference Call – Page 22
Slide 23: Financial Achievements
Financial Achievements Closed 3 divestitures, with gross proceeds of $3.1 billion and net proceeds of $2.7 billion ̶ TRN refinery and OPTIMAL closed in the quarter ̶ Closed Morton Salt divestiture immediately after quarter-end Completely repaid bridge loan 90 days ahead of schedule One meaning
Slide 24: Outlook
Outlook Economic outlook for remainder of 2009 stabilizing, with strong growth in Asia Pacific, particularly China U.S. economy is beginning a slow recovery Dow has begun to benefit from acceleration of restructuring efforts and cost synergies Significant improvements to balance sheet provid
Slide 25: Dow's Business Model
Dow’s Business Model Basics, J/V Performance Market Driven Asset Lite Operational Technology Customer Excellence Differentiation Centric Low Cost-To-Serve, Product Leadership Solutions-Based Resource Efficiency Product Innovation Relationship-based Highly Leveraged Brand Loyalty Process Excellence T
Slide 26: Appendix
Appendix 3Q09 Earnings Conference Call
Slide 27: Electronic & Specialty Materials
Electronic & Specialty Materials Dollars in millions 3Q09 2Q09 3Q08(1) Sales $1,256 $1,164 $1,473 Price 1% (6)% Volume 7% (9)% EBITDA, excluding Certain Items(2) $407 $301 $394 Equity earnings included in EBITDA $94 $58 $114 (1) Reflects pro forma results for the three months ended September 30, 200
Slide 28: Coatings & Infrastructure
Coatings & Infrastructure Dollars in millions 3Q09 2Q09 3Q08(1) Sales $1,330 $1,242 $1,711 Pro Forma Price 3% (13)% Pro Forma Volume 4% (9)% EBITDA, excluding Certain Items(2) $213 $278 $194 Equity earnings included in EBITDA $1 $1 $2 (1) Reflects pro forma results for the three months ended Septemb
Slide 29: Health & Agricultural Sciences
Health & Agricultural Sciences Dollars in millions 3Q09 2Q09 3Q08(1) Sales $796 $1,204 $995 Pro Forma Price (2)% (11)% Pro Forma Volume (32)% (9)% EBITDA, excluding Certain Items(2) $5 $125 $124 Equity earnings included in EBITDA $2 - $1 (1) Reflects pro forma results for the three months ended Sept
Slide 30: Performance Systems
Performance Systems Dollars in millions 3Q09 2Q09 3Q08(1) Sales $1,538 $1,458 $2,180 Pro Forma Price 3% (16)% Pro Forma Volume 2% (13)% EBITDA, excluding Certain Items(2) $206 $242 $111 Equity earnings included in EBITDA $3 $6 $2 (1) Reflects pro forma results for the three months ended September 30
Slide 31: Performance Products
Performance Products Dollars in millions 3Q09 2Q09 3Q08(1) Sales $2,420 $2,085 $3,614 Pro Forma Price 6% (25)% Pro Forma Volume 10% (8)% EBITDA, excluding Certain Items(2) $298 $307 $378 Equity earnings included in EBITDA $19 $7 $21 (1) Reflects pro forma results for the three months ended September
Slide 32: Basic Plastics
Basic Plastics Dollars in millions 3Q09 2Q09 3Q08(1) Sales $2,636 $2,371 $3,849 Pro Forma Price 13% (33)% Pro Forma Volume (2)% 1% EBITDA, excluding Certain Items(2) $590 $406 $663 Equity earnings included in EBITDA $55 $35 $62 (1) Reflects pro forma results for the three months ended September 30,
Slide 33: Basic Chemicals
Basic Chemicals Dollars in millions 3Q09 2Q09 3Q08(1) Sales $568 $586 $1,115 Pro Forma Price (2)% (36)% Pro Forma Volume (1)% (13)% EBITDA, excluding Certain Items(2) $8 $(32) $149 Equity earnings included in EBITDA $45 $9 $58 (1) Reflects pro forma results for the three months ended September 30, 2
Slide 34: Reconciliation of Non-GAAP Financial Measure
Reconciliation of Non-GAAP Financial Measure Three Months Ended Dollars in millions 9/30/09 6/30/09 9/30/08(1) EBITDA $2,237 $596 $1,612 - Depreciation and Amortization 752 763 799 + Interest income 6 9 26 - Interest expense and amortization of debt discount 488 525 463 Income (Loss) from Continuing
Slide 35: Supplemental Information
Supplemental Information Results of Continuing Operations in the third quarter of 2009 were impacted by four items: Pretax charges totaling $47 million related to the April 1, 2009 acquisition of Rohm and Haas Company (“Rohm and Haas”). The charges included transaction and integration costs of $21
Slide 36: Supplemental Information
Supplemental Information Results of Continuing Operations in the third quarter of 2008 were unfavorably impacted by three Dow items: Pretax costs related to Hurricanes Gustav and Ike, which hit the U.S. Gulf Coast in the third quarter of 2008. These costs, which included the repair of property dam
Slide 37: Supplemental Information
Supplemental Information In addition to the items described above for the third quarter of 2009, results of Continuing Operations for the nine-month period ended September 30, 2009 were unfavorably impacted by the following items: The one-time increase in cost of sales of $209 million related to t
Slide 38: Supplemental Information
Supplemental Information In addition to the items described above for the third quarter of 2008, pro forma results of Continuing Operations for the nine-months ended September 30, 2008 were impacted by the following Rohm and Haas items: Net pretax restructuring charges totaling $98 million in the
Slide 39: Supplemental Information
Supplemental Information Results of Continuing Operations in the second quarter of 2009 were unfavorably impacted by three items: The one-time increase in cost of sales of $209 million related to the fair value step-up of inventories acquired from Rohm and Haas Company on April 1, 2009, and sold i
Slide 40: Certain Items Impacting Results
Supplemental Information Certain Items Impacting Results In millions, except per share amounts Pretax Impact on Impact Impact (1) Net Income (2) on EPS (3) Three Months Ended Three Months Ended Three Months Ended 9/30/09 9/30/08 9/30/09 9/30/08 9/30/09 9/30/08 Impact of Hurricanes Gustav and Ike (4)
Slide 41: Certain Items Impacting Results
Supplemental Information Certain Items Impacting Results In millions, except per share amounts Pretax Impact on Impact Impact (1) Net Income (2) on EPS (3) Three Months Ended Three Months Ended Three Months Ended 6/30/09 6/30/09 6/30/09 One-time increase in cost of sales related to fair valuation of
Slide 42: Certain Items Affecting Results
Certain Items Affecting Results Certain items reducing EBITDA by operating segment In millions (unaudited) Three Months Ended Three Months Ended 9/30/09 9/30/08(1) 6/30/09 Electronic & Specialty Materials - $(4) $(143) Coatings & Infrastructure - (2) (253) Health & Agricultural Sciences - (29) 15 Pe
Slide 43: 2Q09 Earnings Per Share Reconciliation
2Q09 Earnings Per Share Reconciliation U.S. $ Earnings per common share – diluted $(0.47) One-time increase in cost of sales related to fair valuation of Rohm and Haas inventories sold in the quarter 0.13 Restructuring charges 0.43 Transaction and other acquisition costs 0.06 Earnings per common sha
Slide 44: 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 MEGlobal The OPTIMAL Group of Companies
Slide 45: Preliminary Results for Principal Joint Ventures
Preliminary Results for Principal Joint Ventures Principal Joint Ventures - Total Dow Proportionate Share Dollars in millions (unaudited) 3Q09 3Q08 Dollars in millions (unaudited) 3Q09 3Q08 Sales $3,444 $4,445 Sales $1,648 $2,091 Adjusted Sales1 $2,864 $3,459 Adjusted Sales1 $1,392 $1,667 EBIT2 $652
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) YTD YTD Dollars in millions (unaudited) YTD YTD 3Q09 3Q08 3Q09 3Q08 Sales $8,657 $12,594 Sales $4,149 $5,921 Adjusted Sales1 $7,213 $9,738 Adjusted Sales1 $3,508
Slide 47: Hydrocarbon / Energy Price Index
Hydrocarbon / Energy Price Index 1976=100 U.S. NON U.S. GLOBAL YEAR QTR YTD QTR YTD QTR YTD 1976 100 100 100 1977 103 99 101 1976 = 100 1978 1979 104 116 100 120 102 118 250 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 1986 140 102 120 210
Slide 48: Global Operating Rates
Global Operating Rates The Dow Chemical Company Global Operating Rates as a Percent of Capacity Year QTR YTD 2006 1Q 84% 84% 2Q 84% 84% 3Q 87% 85% 4Q 85% 85% 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 Abo
Slide 49: Global Hydrocarbon / Energy Purchased Unit Cost Index
Global Hydrocarbon / Energy Purchased Unit Cost Index 1976 = 100 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 149 500 1988 147 1989 154 1990 174 1991 161 400 1992 153 1993 142 1994 143 300 1995 150 1996 166 1997 16
The Dow Chemical Company — Q3 2009 Earnings Presentation on 6ix