Dow Inc. · NYSE:DOW
Dow — The Dow Chemical Company — Q1 2016 Earnings Presentation
35 slides from Dow's earnings presentation, Apr 28, 2016
Slide 1: 1Q 2016 Earnings Conference Call
The Dow Chemical Company 1Q 2016 Earnings Conference Call April 28, 2016 The Dow Chemical Company
Slide 2: SEC Disclosure Rules
SEC Disclosure Rules Regulation G The attached charts include information that does not conform to generally accepted accounting principles (GAAP). Management of the companies believe that an analysis of this data is meaningful to investors because it provides insight with respect to comparisons of
Slide 3: SEC Disclosure Rules
SEC Disclosure Rules Important Information About the Transaction and Where to Find It In connection with the proposed transaction, DowDuPont Inc. (f/k/a Diamond-Orion HoldCo, Inc.) (“DowDuPont”) has filed with the Securities and Exchange Commission (“SEC”) a preliminary registration statement on For
Slide 4: Dow's Unique Combination of Differentiation and Integration Delivers Consistent Earnings Growth
Dow’s Unique Combination of Differentiation and Integration Delivers Consistent Earnings Growth • 14th consecutive quarter of year-over-year operating EPS and operating EBITDA margin expansion • Margin growth continues, driven by geographic breadth, end-market focus, and strength of our businesses a
Slide 5: Agenda
Agenda • First Quarter Overview and Segment Results • Transactions Update: Dow Corning and DowDuPont • Near-Term Earnings Growth Drivers • Market Outlook and Strategic Priorities 5
Slide 6: 1Q16 Highlights: Realizing the Financial and Operating Plan
1Q16 Highlights: Realizing the Financial and Operating Plan Operating EPS grew to $0.89, up 6% Volume1 increased 4% driven by end-market demand in transportation, infrastructure and packaging – Delivered the company’s highest ever quarterly production volume2 – Achieved 88% operating rate driven
Slide 7: Financial Performance Metrics (on a trailing twelve month basis)
Financial Performance Metrics (on a trailing twelve month basis) Operating EPS Operating EBITDA ($MM) Cash Flow ($MM) $4.00 $10,000 $9,000 FCF TTM CAPEX TTM $3.50 $7,500 $9,000 $3.00 $6,000 $2.50 $8,000 $4,500 $2.00 $7,000 $3,000 $1.50 $1,500 $6,000 $1.00 $0 $5,000 Excluding the impact of K-Dow Targ
Slide 8: Agricultural Sciences: Resilience in the Face of Challenging Macros
Agricultural Sciences: Resilience in the Face of Challenging Macros Quarterly Segment Performance Productivity Actions Mitigate Industry Headwinds ($MM) 1Q15 1Q16 • Operating EBITDA nearly flat reflecting continued productivity actions, including prudent cost control, to $1,864 $409 $403 24% mostly
Slide 9: Consumer Solutions: Record Quarterly Operating EBITDA
Consumer Solutions: Record Quarterly Operating EBITDA Dow Automotive Systems – Innovation Driven Momentum Continues Quarterly Segment Performance • Above-market growth driven by robust demand for ($MM) 1Q15 1Q16 Dow’s innovations that enable light-weighting and $1,123 29% $310 sound-dampening $1,054
Slide 10: Infrastructure Solutions: Business Improvements Offset by Equity Earnings
Infrastructure Solutions: Business Improvements Offset by Equity Earnings Dow Building & Construction – Sales Growth Drives Higher Earnings Quarterly Segment Performance • Double-digit volume growth from broad-based demand ($MM) 1Q15 1Q16 across all geographic areas; strong demand for construction c
Slide 11: Performance Materials & Chemicals: Margins Compress; Lower Equity Earnings
Performance Materials & Chemicals: Margins Compress; Lower Equity Earnings Polyurethanes – Tilt to Specialty and Differentiated Business Continues Quarterly Segment Performance ($MM) 1Q15 1Q16 • Double-digit volume growth in higher-margin systems houses and specialty polyols $535 $3,209 • Op. EBITDA
Slide 12: Performance Plastics: Record 1Q Operating EBITDA
Performance Plastics: Record 1Q Operating EBITDA Dow Packaging and Specialty Plastics – Record 1Q Sales Volume Quarterly Segment Performance • Record first quarter PE sales volume on robust demand ($MM) 1Q15 1Q16 conditions for Dow’s differentiated products, supported by focus on reliability and new
Slide 13: Modeling Guidance
Modeling Guidance End-markets – seasonal uptick in infrastructure; continued energy market headwinds Performance Plastics – lower European margins YoY; compression in Latin America of $50-100MM Divestitures – impact is expected to lower revenue by $1B and EBITDA by $100MM vs. SQLY 2Q Turnaround and
Slide 14: Agenda
Agenda • First Quarter Overview and Segment Results • Transactions Update: Dow Corning and DowDuPont • Near-Term Earnings Growth Drivers • Market Outlook and Strategic Priorities 14
Slide 15: Dow Corning Transaction Readying for a 2Q16 Close
Dow Corning Transaction Readying for a 2Q16 Close 1Q16 2Q16 3Q16 & Beyond Targeted Close On track for a second quarter close Close Transaction • Regulatory approvals received from most jurisdictions • Positive private letter ruling received from IRS Integration and synergy capture plans are in full
Slide 16: Dow Corning – Cost Synergies on Track
Dow Corning – Cost Synergies on Track $300MM Fixed Cost Synergies Confirmed Examples of Synergies Expected Run Rate 120% • Consolidate energy contracts at 100% large sites 100% 80% • Optimize warehouse & logistics 80% footprint 65% 60% • Implement materials & maintenance best practices 40% 30% • Har
Slide 17: Significant Progress on Execution of Planned Merger of Equals
Significant Progress on Execution of Planned Merger of Equals 4Q15 2016 2017-2018 Signed Hart- S-4 ROW Share- Close Stand Up SpinCos1 Complete Spins1 12/11/15 Scott- Filing Competi- holder 2H16 Rodino First draft tion Vote Filing 3/1/16; Filings June/July Filed on Amend 1Q16/ pending 1/27/16 No.1 2Q
Slide 18: We are Taking a Joint Approach to Integration
We are Taking a Joint Approach to Integration Steering Committee Accountable to shareholders to deliver value from the merge/spin according to the merger agreement Ed Breen, Chairman & CEO Andrew N. Liveris, Chairman & CEO Stacy Fox, SVP & General Counsel Charles Kalil, General Counsel & EVP Nick Fa
Slide 19: Agenda
Agenda • First Quarter Overview and Segment Results • Transactions Update: Dow Corning and DowDuPont • Near-Term Earnings Growth Drivers • Market Outlook and Strategic Priorities 19
Slide 20: Near-Term Earnings Growth Drivers
Near-Term Earnings Growth Drivers Productivity • Delivered $345MM in 2015 Program • Target of >$300MM in 2016 (~$90MM delivered in 1Q16) • Started up in 4Q15 Freeport PDH • Completed performance test in 1Q16 • First product delivered on plan; second PE train started in April Sadara • Multiple units
Slide 21: Favorable Polyethylene Supply/Demand Balances Persist
Favorable Polyethylene Supply/Demand Balances Persist Dow’s View on Market Drivers Global Polyethylene – Demand Growth Expected to Offset New Supply • Sustainable urbanization in developing Demand Capacity Operating Rate (%) world driving global demand 300 95% • Recurring pattern of forecasts that o
Slide 22: Maximizing Our Competitive Position
Maximizing Our Competitive Position Sources of Value Vary Over Time Dow View Next 3 Years PE/Ethylene Margin • Supply/demand balances for PE drive margin Ethylene/Naphtha Margin regardless of energy environment Ethane/Naphtha Spread 100% • PE/ethylene margin likely to persist as PE additions lag eth
Slide 23: Agenda
Agenda • First Quarter Overview and Segment Results • Transactions Update: Dow Corning and DowDuPont • Near-Term Earnings Growth Drivers • Market Outlook and Strategic Priorities 23
Slide 24: Market Outlook – Slow Growth and Volatility, Dow will Continue to Deliver Earnings Growth
Market Outlook – Slow Growth and Volatility, Dow will Continue to Deliver Earnings Growth • Consumer-driven demand seen across the globe Supported by economic transition in China; consumer strength seen in Europe and U.S. Packaging and polyethylene value chain supply/demand dynamics still tight
Slide 25: Forward Focus: 2016 Priorities
Forward Focus: 2016 Priorities 1 Deliver operating and financial plan 2 Close the Dow Corning transaction by mid-year 2016 3 Accelerate DowDuPont key stage gates • Close merger in 2H16 • Define accelerated synergy capture plans • Deliver intended spins Driving Increasing Results; Delivering Sharehol
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Slide 27: Appendix
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Slide 28: Third Party PE Capacity Forecasts Overly Optimistic on Startup and Ramp to Full Rates
Third Party PE Capacity Forecasts Overly Optimistic on Startup and Ramp to Full Rates, Especially Outside of North America Dow View Announced PE Capacity Growth (2018 vs. 2014) • Expect delays with industry projects under Significant Asia and Middle East Growth construction: New participants climb
Slide 29: Near-Term U.S. NGL Dynamics Remain Favorable For Dow
Near-Term U.S. NGL Dynamics Remain Favorable For Dow Ethane Expected to be Long Into 2020+ Propane Exports Needed to Balance Market 2,500 600 2,000 1,000 2,250 500 Ethane Surplus / Deficit (MBD) Propane Surplus / Deficit (MBD) 1,750 800 Ethane Usage (M BPD) Ethane Usage (M BPD) 2,000 400 1,500 600 1
Slide 30: Dow's Industry Leading Feedstock Flexibility Enables Optimized Feedslate Economics
Dow’s Industry Leading Feedstock Flexibility Enables Optimized Feedslate Economics Increasing U.S. Ethane Capability Nearly Half of European Ethylene from LPG in 2015 Dow U.S. Dow Americas Dow North America Capability to Produce Ethylene From Ethane Volume 90% 2015 80% 2014 70% 60% 2013 50% 2012 40%
Slide 31: Market Pulse – 1Q16 Heat Map
Market Pulse – 1Q16 Heat Map Eastern Europe, ME, 1Q16 Up 3X GDP or greater Western Europe Developing Asia Developed Asia Flat Demand Growth Latin America US & Canada Africa, India 1Q16 Down Double digit or greater Lower Participation Market >$1B Participation in 2015 ex. Divestitures Construction Re
Slide 32: 1Q16 vs. 1Q15 Sales Trends by Business
1Q16 vs. 1Q15 Sales Trends by Business Agricultural Sciences by Business1 Consumer Solutions Infrastructure Solutions Sales Price Volume Sales Price Volume Dow Building & Sales Price Volume Construction # $ # Dow Automotive $ $ # Crop Protection $ $ $ Systems Energy & Water $ $ $ Consumer Care $ $ $
Slide 33: Global Operating Rates as a Percent of Capacity
Global Operating Rates as a Percent of Capacity Year QTR YTD 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% 4Q 86% 85% 2016 1Q 88% 88% 33
Slide 34: Preliminary Results for Principal Joint Ventures
Preliminary Results for Principal Joint Ventures1 Principal Joint Ventures – Total Dow Proportionate Share Dollars in millions (unaudited) 1Q16 1Q15 Dollars in millions (unaudited) 1Q16 1Q15 Sales $3,179 $3,777 Sales $1,380 $1,629 Adjusted Sales2 $2,540 $2,829 Adjusted Sales2 $1,128 $1,245 EBITDA3 $
Slide 35: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Three Months Ended In millions 3/31/16 3/31/15 Operating EBITDA $2,253 $2,401 + Certain Items (1,300) 662 EBITDA $953 $3,063 - Depreciation and amortization 607 634 + Interest Income 20 17 - Interest expense and amortization of debt discount 201 241 Inco
The Dow Chemical Company — Q1 2016 Earnings Presentation on 6ix