Dow Inc. · NYSE:DOW
Dow — The Dow Chemical Company — Q3 2011 Earnings Presentation
47 slides from Dow's earnings presentation, Oct 27, 2011
Slide 1: Q3 2011 Earnings Conference Call
The Dow Chemical Company Q3 2011 Earnings Conference Call October 27, 2011 1
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 expectatio
Slide 3: Agenda
Agenda 3Q11 Overview Financial Update Strategy In Action Outlook & Priorities (1) Within this presentation all references to earnings per share, EBITDA (2) and EBITDA margin(2) are presented excluding certain items,(3) unless otherwise specified. (2) EBITDA is defined as earnings (i.e., “Net
Slide 4: Dow Delivers Significant Top- and Bottom-Line Growth
Dow Delivers Significant Top- and Bottom-Line Growth Reported earnings per share of $0.69 – >50 percent increase Y-O-Y – Company delivered earnings of $0.62 per share excluding certain items EBITDA of $2B represents record 3Q and YTD performance – New quarterly EBITDA records achieved in Electro
Slide 5: On Our Earnings Growth Trajectory
On Our Earnings Growth Trajectory Margin Expansion / Organic Growth Equity Earnings Growth Synergies / Innovation ~$1.5B of incremental EBITDA $10B $8.7B $7.5B $5.5B Trailing Near 2009(1) 2010 12 Months Term (1) Pro forma, reflecting the combination of historical information of Dow and Rohm and Haas
Slide 6: 3Q11 Financial Performance
3Q11 Financial Performance Dollars in millions, except per share amounts 3Q11 3Q10 Net Sales $15,109 $12,868 Price change in percent 17% Volume change in percent -- EBITDA $2,099 $1,782 EBITDA, excluding certain items $2,013 $1,911 Net Income Available for Common $815 $512 Stockholders Net Income Av
Slide 7: Year-Over-Year Volume Trends
Year-Over-Year Volume Trends Electronic & Dow’s diversification on 3% Functional Materials Coatings & display in 3Q11 Infrastructure Solutions -4% Agricultural Sciences 18% Double-digit increase in Performance Materials -3% Agricultural Sciences Performance Plastics 1% Demand gains in Latin Fe
Slide 8: Year-Over-Year Price Trends
Year-Over-Year Price Trends Electronic & Functional Materials 8% Price up 17% Coatings & 14% Infrastructure Solutions Up in all operating Agricultural Sciences 5% 9% segments Performance Materials 15% Performance Plastics 15% More than offset $1.7B Feedstocks & Energy 36% increase in feedstock
Slide 9: Operating Segment View
Operating Segment View Electronic and Functional Materials Sales up 11%; EBITDA reached new record Dow Electronic Materials posted 6% demand growth, with strongest gains in Display Technologies and Semiconductor Technologies Functional Materials sales increased double-digits, driven by price
Slide 10: Operating Segment View
Operating Segment View Agricultural Sciences Record third quarter sales of $1.2 billion; up 27% year-over-year Volume up 18%; price up 9% Double-digit sales and volume gains in all geographic areas Ag Chem demand up >20% Seeds, Traits and Oils posted year-to-date demand gains of >25% Perfo
Slide 11: Operating Segment View
Operating Segment View Performance Plastics Sales growth of 16%; price up 15% and volume up 1% Elastomers delivered record EBITDA on double-digit volume growth and strong price management Price increased double-digits in all geographic areas Margin contraction driven by planned turnaround ex
Slide 12: Equity Earnings Reach Record Level YTD
Equity Earnings Reach Record Level YTD Quarterly Average Equity earnings were $375MM; Equity Earnings from Nonconsolidated Affiliates or $289MM, ex certain items ($ millions, excluding certain items) 350 – 15% increase year-over-year 300 Strong results from JVs in 250 Kuwait, MEGlobal and Dow Cornin
Slide 13: Additional Financial Highlights
Additional Financial Highlights 3Q11 cash flow from operations: $1.2 billion – Up >$250 million vs. SQLY Reduced net debt by ~$500 million – Net Debt to Capital: 40.9% – Net Debt to EBITDA: 2.0 – Year to date the Company has reduced debt by $4.2 billion 13
Slide 14: Advancing Our Strategy on All Fronts
Advancing Our Strategy on All Fronts Largest, most flexible and experienced ethylene producer 70% of ethylene production in cost-advantaged regions Feedstock Advantage Shale gas dynamics & USGC investments drive EBITDA upside of ~$2B/year by 2017 Strategically aligned with key end-markets an
Slide 15: An Integrated Portfolio Designed for Growth
An Integrated Portfolio Designed for Growth Feedstocks Feedstocks Sustainable & Energy & Energy Growth Advantaged feedstocks Highly differentiated, market-driven, to support and advance technology-rich businesses focused on downstream growth addressing megatrends and key end-markets − Packaging
Slide 16: Feedstocks & Energy
Feedstocks & Energy 2011 Global Ethylene Cash Cost Curve Ethylene Supply/Demand Forecast 1,650 200 Source: At trough CMAI, Dow 91 92 conditions today 90 90 90 Ethylene, millions of tons 1,450 160 87 88 Operating Rate, % 1,250 84 84 85 85 U.S. Dollars Per Metric Ton Western Europe Avg Northeast Asia
Slide 17: Performance Plastics
Performance Plastics Sales by End-Market Value Drivers Elastomers New market and value chain orientation Hygiene & Medical Aligned with global megatrends Electrical & Telecom. Focused on fast-growing, higher-margin sectors Broad geographic reach Strong heritage of innovation 70% of asset
Slide 18: Performance Materials
Performance Materials Sales by End-Market Value Drivers Agriculture & Food 3% Leading industry positions with global reach and access to Electronics & large attractive end-markets Entertainment 8% Diverse products and end-markets with broad application Other opportunities 16% Expanding pre-emi
Slide 19: Agricultural Sciences
Agricultural Sciences Sales by Key Product Lines Value Drivers Ag chem pipeline filled with high-value solutions and Fungicides 9% proprietary formulations for the next 10 years Other 2% Significant technology-driven growth, led by biotech Seeds/Traits innovations and novel ag chem products 16%
Slide 20: Advanced Materials
Advanced Materials Coatings & Electronic & Infrastructure Solutions Functional Materials Sales by Business Unit Value Drivers Strong leadership positions in technology intensive industries, such as electronics and water Dow Coating Well-positioned, growing manufacturing and R&D base in Asia Mate
Slide 21: Record Performance in Emerging Regions
Record Performance in Emerging Regions Emerging Emerging Emerging (28%) 2012 2008 3Q11 (33%) (35%) Target Developed Developed Developed Recently Thai JVs: Specialty elastomers online; Solution PE sold out; HPPO ramping ENLIGHT™ Photovoltaic Encapsulant Films in U.S. Completed TMG in Korea Pr
Slide 22: Delivering On Our Innovation Agenda
Delivering On Our Innovation Agenda Health & Transportation & Consumerism Energy Nutrition Infrastructure Launched EVOQUE™ Pre- Launched Spinetoram™ in Launched EcoSmooth™ satin Launched DOW™ Composite Polymer Argentina and Chile conditioning polymer POWERHOUSE™ Solar Shingle Technology Introduced W
Slide 23: Levers to Mitigate Risk
Levers to Mitigate Risk Disciplined Price & Volume Management Cash Flow Interventions + Action Amount Efficiency for Growth Accelerate Efficiency for + Growth $750 Million Integration Investments Execute cost reduction $750 Million program + Actively manage capex and $1 Billion Commercializing Innov
Slide 24: Macroeconomic Outlook
Macroeconomic Outlook Developed Emerging Developed Emerging Developed Emerging Continued Demand Growth Middle East & Africa Middle East & Africa Middle East & Africa Flat or Insignificant Demand Growth North America North America North America Latin America Latin America Latin America Slowing or Neg
Slide 25: 6 – 12 Month Outlook: Macro Strengths & Challenges
6 – 12 Month Outlook: Macro Strengths & Challenges • Deteriorating confidence in • Ongoing demand growth in global economic recovery emerging regions • Sovereign debt and • Resilient sectors continue to recessionary concerns benefit from secular trends – Automotive supply chains • High U.S. unemploy
Slide 26: Dow Actions to Deliver Growth Over Next 12 Months
Dow Actions to Deliver Growth Over Next 12 Months Leverage diverse portfolio to take advantage of attractive end-markets Accelerate growth in emerging geographies Closely manage price / volume Maximize low-cost, flexible feedstock advantage Drive further actions to improve cost and product
Slide 27: Dow Integration + Insight + Ingenuity = Growth
Dow Integration + Insight + Ingenuity = Growth 27
Slide 28: Appendix
Appendix 28
Slide 29: Electronic & Functional Materials
Electronic & Functional Materials Dollars in millions 3Q11 3Q10 Sales $1,205 $1,087 Price 8% Volume 3% EBITDA $306 $277 Equity earnings (included in EBITDA) $23 $23 3Q11 Sales 3Q11 Trends vs. 3Q10 Dow Electronic Sales Price Volume Materials Dow Electronic Materials Functional Materials F
Slide 30: Coatings & Infrastructure Solutions
Coatings & Infrastructure Solutions Dollars in millions 3Q11 3Q10 Sales $1,905 $1,734 Price 14% Volume (4)% EBITDA $372 $382 Equity earnings (included in EBITDA) $72 $75 3Q11 Sales 3Q11 Trends Dow Building Performance vs. 3Q10 & Monomers Construction Sales Price Volume Dow Building & Construction
Slide 31: Agricultural Sciences
Agricultural Sciences Dollars in millions 3Q11 3Q10 Sales $1,205 $948 Price 9% Volume 18% EBITDA $75 ($12) Equity earnings (included in EBITDA) - $2 3Q11 Sales 3Q11 Trends vs. 3Q10 Other Sales Price Volume Dow AgroSciences Other Dow AgroSciences 31
Slide 32: Performance Materials
Performance Materials Dollars in millions 3Q11 3Q10 Sales $3,698 $3,311 Price 15% Volume (3)% EBITDA $478 $513 Equity losses (included in EBITDA) $(11) ($4) 3Q11 Trends vs. 3Q10 Sales Price Volume 3Q11 Sales Amines Dow Plastic Dow Chlorinated Organics - Additives Amines Automotive Polyuret
Slide 33: Performance Plastics
Performance Plastics Dollars in millions 3Q11 3Q10 Sales $4,114 $3,540 Price 15% Volume 1% EBITDA $834 $900 EBITDA, excluding Certain Items(1) $748 $898 Equity earnings (included in EBITDA) $150 $58 Equity earnings, excluding Certain Items(1) $64 $58 (1) See Supplemental Information regarding these
Slide 34: Feedstocks & Energy
Feedstocks & Energy Dollars in millions 3Q11 3Q10 Sales $2,905 $2,176 Price 36% Volume (2)% EBITDA $263 $154 Equity earnings (included in EBITDA) $153 $98 3Q11 Sales 3Q11 Trends Chlor- vs. 3Q10 Alkali/Chlor- Vinyl Sales Price Volume Chlor-Alkali/Chlor-Vinyl EO/EG Energy Energy Ethylene O
Slide 35: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Three Months Ended Dollars in millions 09/30/11 09/30/10 EBITDA $2,099 $1,782 - Depreciation and amortization 714 716 + Interest income 9 7 - Interest expense and amortization of debt discount 305 362 Income Before Income Taxes $1,089 $711 - Provision fo
Slide 36: Supplemental Information
Supplemental Information Results in the third quarter of 2011 were favorably impacted by one item: • Pretax $86 million gain related to cash collected on a previously impaired note receivable related to Equipolymers, a nonconsolidated affiliate. The gain is shown as "Equity in earnings of nonconsoli
Slide 37: Supplemental Information
Supplemental Information Certain Items Impacting Results In millions, except per share amounts Pretax Impact (1) Net Income (2) EPS - Diluted (3) Three Months Ended Three Months Ended Three Months Ended 09/30/11 09/30/10 09/30/11 09/30/10 09/30/11 09/30/10 Excluding certain items (non-GAAP measures)
Slide 38: Certain Items Affecting Results
Certain Items Affecting Results Certain items increasing (reducing) EBITDA by operating segment In millions Three Months Ended 9/30/11 9/30/10 Electronic & Functional Materials - - Coatings & Infrastructure Solutions - - Agricultural Sciences - - Performance Materials - - Performance Plastics 86 2 F
Slide 39: Reconciliation of Non-GAAP Financial Measure
Reconciliation of Non-GAAP Financial Measure Nine Months Ended Dollars in millions 09/30/11 09/30/10 EBITDA $6,373 $5,444 - Depreciation and amortization 2,142 2,207 + Interest income 26 24 - Interest expense and amortization of debt discount 1,010 1,105 Income Before Income Taxes 3,247 2,156 - Prov
Slide 40: Supplemental Information
Supplemental Information In addition to the item described above for the third quarter of 2011, results for the nine-month period ended September 30, 2011 were unfavorably impacted by two items: • Pretax charges totaling $31 million for integration costs related to the April 1, 2009 acquisition of R
Slide 41: Supplemental Information
Supplemental Information Certain Items Impacting Results In millions, except per share amounts Pretax Impact (1) Net Income (2) EPS - Diluted (3) Nine Months Ended Nine Months Ended Nine Months Ended 09/30/11 09/30/10 09/30/11 09/30/10 09/30/11 09/30/10 Excluding certain items (non-GAAP measures) $2
Slide 42: Certain Items Affecting Results
Certain Items Affecting Results Certain items increasing (reducing) EBITDA by operating segment In millions Nine Months Ended 9/30/11 9/30/10 Electronic & Functional Materials - $(8) Coatings & Infrastructure Solutions - (20) Agricultural Sciences - - Performance Materials - 41 Performance Plastics
Slide 43: Principal Joint Ventures
Principal Joint Ventures Although Dow participates in many joint ventures, the most significant joint ventures from a financial perspective are: Compañía Mega S.A. Dow Corning Corporation EQUATE Petrochemical Company K.S.C. The Kuwait Olefins Company K.S.C. MEGlobal The SCG-Dow Group Univation Techn
Slide 44: Preliminary Results for Principal Joint Ventures
Preliminary Results for Principal Joint Ventures Principal Joint Ventures - Total Dow Proportionate Share Dollars in millions Dollars in millions 3Q11 3Q10(1) 3Q11 3Q10(1) Sales $4,501 $3,430 Sales $2,177 $1,654 Adjusted Sales(2) $3,452 $2,816 Adjusted Sales(2) $1,697 $1,381 EBITDA(3) $1,112 $841 EB
Slide 45: Global Operating Rates as a Percent of Capacity
Global Operating Rates as a Percent of Capacity Year QTR YTD 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% 2Q 80% 82% 3Q 86% 83% 4Q 81% 83% 2011 1Q 83% 83% 2Q 84% 83% 3Q 83% 83% Operating rate is calculated on fixed cost absorption
Slide 46: 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 1978 104 100 102 1976 = 100 1979 116 120 118 1980 137 133 135 270 1981 145 126 136 1982 143 117 130 1983 150 111 129 250 1984 153 109 129 1985 147 103 123 1986 140 102 120 230 1987 147
Slide 47: Global Hydrocarbon / Energy Purchased Unit Cost Index
Global Hydrocarbon / Energy Purchased Unit Cost Index QTR YTD 1976 100 1977 110 1978 116 1979 162 1976 = 100 1980 218 1981 241 700 1982 235 1983 233 1984 222 1985 205 600 1986 140 1987 149 1988 147 1989 154 500 1990 174 1991 161 1992 153 1993 142 400 1994 143 1995 150 1996 166 1997 166 300 1998 131
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