Dow Inc. · NYSE:DOW

Dow — The Dow Chemical Company — Q2 2014 Earnings Presentation

40 slides from Dow's earnings presentation, Jul 23, 2014

  1. Slide 1: The Dow Chemical Company 2Q 2014 Earnings Conference Call

    The Dow Chemical Company 2Q 2014 Earnings Conference Call July 23, 2014 The Dow Chemical Company

  2. 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

  3. Slide 3: Dow Delivers Earnings Growth and Margin Expansion

    Dow Delivers Earnings Growth and Margin Expansion  Adjusted Earnings per share of $0.74 – up 16%  Sales of $14.9B – up 3% on an adjusted basis – with gains in all operating segments  Adjusted EBITDA increases to $2.2B – led by Performance Materials, Performance Plastics and Electronic & Functiona

  4. Slide 4: Agenda

    Agenda  2Q 2014 Financial Update  Segment Review  Our Six Near-Term Strategic Priorities 4

  5. Slide 5: 2Q14 Financial Performance

    2Q14 Financial Performance Dollars in millions, except per share amounts 2Q14 2Q13 Net Sales $14,917 $14,577 Adjusted Net Sales $14,917 $14,497 Volume change in percent +1% -- Price change in percent +2% -- EBITDA $2,224 $4,166 Adjusted EBITDA $2,242 $2,127 Net Income Available for Common Stockholde

  6. Slide 6: Drivers of 2Q14 Financial Performance

    Drivers of 2Q14 Financial Performance Key Drivers in the Quarter $0.74  Delivered strong margin expansion, led by Performance Plastics $0.64  Sales growth in all segments  Productivity actions drove ongoing cost and asset utilization improvements  Notable headwinds from Plaquemine, LA outage Mar

  7. Slide 7: Agenda

    Agenda  2Q 2014 Financial Update  Segment Review  Our Six Near-Term Strategic Priorities 7

  8. Slide 8: Near-Term Strategic Priorities (2014/2015)

    Near-Term Strategic Priorities (2014/2015) 1. Invest in key integrated and feedstock driven value chains and successfully start up these projects in 2015 (USGC and Sadara) 2. Launch new products in Dow Packaging & Specialty Plastics, Dow AgroSciences, Dow Electronic Materials and Dow Coating Materia

  9. Slide 9: Targeted Growth & Productivity Gains Accelerate Earnings

    Targeted Growth & Productivity Gains Accelerate Earnings Driving Adjusted EBITDA Margin Expansion Business-Specific Actions Across All Segments  E&FM customizing solutions for Electronic & Functional attractive food, energy and display Materials technology sectors Coatings &  Performance Plastics

  10. Slide 10: Electronic & Functional Materials Market Trends and Near-Term Outlook

    Electronic & Functional Materials Market Trends and Near-Term Outlook 2Q14 Sales: $1.2B, up 5% 2Q14 EBITDA: $303MM, up 19% Dow Electronic Materials  Strong customer relationships and technology platforms enable quick innovation cycles and drive growth – solid sales gains in Asia Pacific  Demand fo

  11. Slide 11: Coatings & Infrastructure Solutions Market Trends and Near-Term Outlook

    Coatings & Infrastructure Solutions Market Trends and Near-Term Outlook 2Q14 Sales: $2B, up 3% 2Q14 EBITDA: $257MM, up 3% Dow Coating Materials  Growth outpacing the market in architectural and industrial sectors with 2Q sales increases in nearly all regions  2H margin increases on improving produ

  12. Slide 12: Agricultural Sciences Market Trends and Near-Term Outlook

    Agricultural Sciences Market Trends and Near-Term Outlook 2Q14 Sales: $1.9B, up 3% 2Q14 EBITDA: $281MM, down 3% Crop Protection  Record sales in the quarter driven by insecticides growth in North America and Latin America  Positive 3Q demand outlook, despite missed applications in North America 

  13. Slide 13: Performance Materials Market Trends and Near-Term Outlook

    Performance Materials Market Trends and Near-Term Outlook 2Q14 Sales: $3.4B, up 1% 2Q14 EBITDA: $386MM, up 36% Polyurethanes Value Chain  Productivity actions and improving demand enabled 2Q EBITDA margin expansion  Strong demand in energy efficiency, consumer comfort and industrial sectors expect

  14. Slide 14: Performance Plastics Market Trends and Near-Term Outlook

    Performance Plastics Market Trends and Near-Term Outlook 2Q14 Sales: $3.7B, up 4% on an adjusted basis; 2Q14 EBITDA: $1,067MM, up 6% Dow Packaging and Specialty Plastics  Continuing strong YoY demand momentum in targeted markets: flexible food & specialty packaging and hygiene & medical  Global pr

  15. Slide 15: Driving Near-Term Margin Expansion and Growth

    Driving Near-Term Margin Expansion and Growth 2013 Adjusted Market Innovation Investments Productivity EBITDA Margin Growth Near-Term EBITDA Margin Expansion E&FM 23% 100-150 bps Examples: Grow Display Technologies; Enter adjacent markets and technologies; Brand-owner relationships C&I 13% 300 bps E

  16. Slide 16: Agenda

    Agenda  2Q 2014 Financial Update  Segment Review  Our Six Near-Term Strategic Priorities 16

  17. Slide 17: Near-Term Strategic Priorities (2014/2015)

    Near-Term Strategic Priorities (2014/2015) 1. Invest in key integrated and feedstock driven value chains and successfully start up these projects in 2015 (USGC and Sadara) 2. Launch new products in Dow Packaging & Specialty Plastics, Dow AgroSciences, Dow Electronic Materials and Dow Coating Materia

  18. Slide 18: Priority 1: Successful start-up of Sadara and USGC investments

    Priority 1: Successful start-up of Sadara and USGC investments Focused on Mitigating Cost Inflation  First-mover advantage: Secure industry- leading EPC firms; enable equipment orders ahead of the cost curve  Global reach and scale: Attract and retain talent; leverage prior designs and global cons

  19. Slide 19: Priority 2: Launch new products and deliver new margins

    Priority 2: Launch new products and deliver new margins R&D Magazine Award Winning Technologies Dow Automotive Systems BETAMATE™ 1630 structural adhesive  Targeted at corn, soybean and cotton Dow Oil, Gas & Mining markets for the Americas NEPTUNE™ subsea insulation system  Resistant and hard-to-co

  20. Slide 20: Priority 4: Divest or JV chlorine chain and Epoxy business in 2014/2015

    Priority 4: Divest or JV chlorine chain and Epoxy business in 2014/2015  Divesting non-strategic assets, representing $4 billion of revenue  Assessing all market options  Fine tuning scope to maximize integration benefits and minimize stranded costs  Ensuring long-term value creation Transaction

  21. Slide 21: Priority 5: Release hidden value businesses and ventures

    Priority 5: Release hidden value businesses and ventures, drive better transparency on ROC and value creation in each segment Total: $4.5B – $6B Corporate Assets  Nearly $1B in 100% proceeds expected  12 corporate teams ~$3B – $4B 75% reviewing all JVs and all Chlorine Carve- structural costs Out

  22. Slide 22: On the Path to $10B+ EBITDA Near Term

    On the Path to $10B+ EBITDA Near Term Near-Term Controllable Growth Catalysts 2014 2015-16 2017 $50-$100MM >$350MM >$450MM/yr >$250MM/yr ~$500MM >$1.5B/yr NPV>$1B over 2013 in 2014-15 run-rate run-rate annually run-rate St. Charles Cost Louisiana TX Ethylene Freeport U.S. Enlist™ Ethylene Savings Et

  23. Slide 23: Near-Term Strategic Priorities (2014/2015)

    Near-Term Strategic Priorities (2014/2015) 1. Invest in key integrated and feedstock driven value chains and successfully start up these projects in 2015 (USGC and Sadara) 2. Launch new products in Dow Packaging & Specialty Plastics, Dow AgroSciences, Dow Electronic Materials and Dow Coating Materia

  24. Slide 24: Priority 6: Drive returns that exceed the cost of capital

    Priority 6: Drive returns that exceed the cost of capital, increase financial flexibility with cash generated and reward shareholders Key Uses of Cash Operational Focus Delivers Key Uses of Cash (2011-2013) Higher Levels of Cash Last four quarters  Strong cash from operations growth  Financial fle

  25. Slide 25: Slide 25

  26. Slide 26: Electronic and Functional Materials 2Q14 Sales

    Electronic and Functional Materials Dollars in millions 2Q14 2Q13 Sales $1,205 $1,152 Price 0% Volume 5% EBITDA $303 $254 Equity earnings (included in EBITDA) $22 $28 2Q14 Sales Dow Electronic Materials 2Q14 Trends vs. 2Q13 Sales Price Volume Dow Electronic Materials    Functional Materials  - 

  27. Slide 27: Coatings and Infrastructure Solutions 2Q14 Sales

    Coatings and Infrastructure Solutions Dollars in millions 2Q14 2Q13 Sales $1,951 $1,888 Price 1% Volume 2% EBITDA $257 $250 Equity earnings (included in EBITDA) $43 $25 2Q14 Sales 2Q14 Trends Dow Building vs. 2Q13 Performance Monomers and Construction Sales Price Volume Dow Building and Construction

  28. Slide 28: Agricultural Sciences 2Q14 Sales

    Agricultural Sciences Dollars in millions 2Q14 2Q13 Sales $1,907 $1,850 Price 0% Volume 3% EBITDA $281 $290 Equity earnings (included in EBITDA) $1 $1 2Q14 Sales Seeds 2Q14 Trends vs. 2Q13 Sales Price Volume Crop Protection  -  Seeds  -  Crop Protection 28

  29. Slide 29: Performance Materials

    Performance Materials Dollars in millions 2Q14 2Q13 Sales $3,440 $3,389 Price 1% Volume 0% EBITDA $386 $284 Equity losses (included in EBITDA) $(30) $(12) 2Q14 Trends vs. 2Q13 2Q14 Sales Sales Price Volume Amines    Chlorinated Organics  -  Dow Automotive Systems    Dow Formulated Systems 

  30. Slide 30: Performance Plastics

    Performance Plastics Dollars in millions 2Q14 2Q13 Sales $3,746 $3,676 Adjusted Sales $3,746 $3,596 Price 7% Adj. Volume (3%) EBITDA $1,067 $1,010 Equity earnings (included in EBITDA) $71 $88 2Q14 Sales 2Q14 Trends Dow Elastomers Dow Electrical and vs. 2Q13 Telecommunications Sales Price Volume Dow

  31. Slide 31: Feedstocks and Energy

    Feedstocks and Energy Dollars in millions 2Q14 2Q13 Sales $2,595 $2,543 Price (1%) Volume 3% EBITDA $190 $193 Equity earnings (included in EBITDA) $125 $105 2Q14 Trends 2Q14 Sales vs. 2Q13 Sales Price Volume Chlor- Alkali/Chlor-Vinyl Chlor-Alkali/Chlor-Vinyl    EO/EG Energy    Energy Ethylene

  32. Slide 32: Reconciliation of Non-GAAP Financial Measures

    Reconciliation of Non-GAAP Financial Measures Three Months Ended In millions 06/30/14 06/30/13 EBITDA ex certain Items $2,242 $2,127 Certain Items $(18) $2,039 EBITDA $2,224 $4,166 - Depreciation and amortization $677 $659 + Interest income $9 $10 - Interest expense and amortization of debt discount

  33. Slide 33: Supplemental Information- 2Q14

    Supplemental Information- 2Q14 Certain Items Impacting Results In millions, except per share amounts (unaudited) Pretax Impact (1) Net Income (2) EPS - Diluted (3) (4) Three Months Ended Three Months Ended Three Months Ended 06/30/2014 06/30/2013 06/30/2014 06/30/2013 06/30/2014 06/30/2013 Adjusted

  34. Slide 34: Supplemental Information

    Supplemental Information Results in the second quarter of 2014 were impacted by the following item: • Pretax charges of $18 million for nonrecurring transaction costs associated with the planned separation of a significant portion of the Company’s chlorine value chain, consisting primarily of financ

  35. Slide 35: Emerging Geographies

    Emerging Geographies Dow defines emerging geographies as the following: Eastern Europe, including Russia Asia Pacific, excluding Japan, Australia and New Zealand Latin America India Middle East Africa 35

  36. Slide 36: Principal Joint Ventures

    Principal Joint Ventures Although Dow participates in many joint ventures, the most significant joint ventures from a financial perspective are: Dow Corning Corporation EQUATE Petrochemical Company K.S.C. The Kuwait Olefins Company K.S.C. Map Ta Phut Olefins Company Limited MEGlobal Sadara Chemical

  37. Slide 37: Preliminary Results for Principal Joint Ventures

    Preliminary Results for Principal Joint Ventures Principal Joint Ventures - Total Dow Proportionate Share Dollars in millions (unaudited) 2Q14 2Q13 Dollars in millions (unaudited) 2Q14 2Q13 Sales $4,768 $4,429 Sales $2,083 $1,956 Adjusted Sales(1) $3,502 $3,321 Adjusted Sales(1) $1,567 $1,507 EBITDA

  38. Slide 38: Reconciliation of Equity Earnings

    Reconciliation of Equity Earnings 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Quarterly Average Equity Earnings excluding certain $10 $81 $231 $241 $240 $281 $197 $181 $278 259 items Equity Earnings excluding certain items, for the year 40 322 923 964 959 1,122 787 724 1,112 1,137 Certain item

  39. Slide 39: Global Operating Rates as a Percent of Capacity

    Global Operating Rates as a Percent of Capacity Year QTR YTD 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% 4Q 78% 81% 2013 1Q 82% 82% 2Q 78% 80% 3Q 82% 81% 4Q 82% 81% 2014 1Q 83% 83% 2Q 82% 83% 39

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The Dow Chemical Company — Q2 2014 Earnings Presentation on 6ix