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Dow Reports First Quarter Results

First Quarter 2016 Highlights

  • Dow reported earnings per share of $0.89 [(1) ] on an operating basis, or earnings per share of $0.15 on a reported basis. This compares with earnings per share of $0.84 on an operating basis in the year-ago period, or $1.18 per share on a reported basis. Certain Items in the quarter reflected a $0.70 per share charge for the urethane matters legal settlements and a $0.04 per share charge for costs associated with portfolio and productivity actions.
  • Sales were $10.7 billion, down 13 percent versus the year-ago period, or 8 percent excluding the impact of divestitures and acquisitions [(2)] . The decrease was primarily due to local price declines, of which the largest contributor was the Hydrocarbons business, and ongoing global currency headwinds.
  • Volume rose 4 percent, excluding the impact of divestitures and acquisitions. Growth in North America (up 6 percent), Europe, Middle East, Africa and India (up 4 percent) and Asia Pacific (up 3 percent) more than offset a decline in Latin America (down 4 percent). Volume grew in the emerging geographies, as results in Greater China (up 5 percent) and India (up 13 percent) reflected solid consumer-driven demand in these regions.
  • EBITDA [(3)] was $2.3 billion on an operating basis [(4)] , or $1 billion on a reported basis, compared to $2.4 billion on an operating basis in the year-ago period. Operating EBITDA improvement from targeted end-markets such as transportation, infrastructure and electronics was more than offset by the impact of lower equity earnings and divestitures.
  • Operating EBITDA margin [(5) ] expanded from 19 percent to 21 percent – the highest level in more than a decade – reflecting disciplined margin management and the benefits of self-help actions. Gains were delivered in most operating segments, led by Consumer Solutions (up 400 basis points), Agricultural Sciences (up 250 basis points), Infrastructure Solutions (up 220 basis points) and Performance Plastics (up 70 basis points). These gains more than offset a decline in Performance Materials & Chemicals (down 130 basis points), which was primarily impacted by lower equity earnings related to a reduced contribution from MEGlobal and Sadara start-up expenses.
  • Dow's focus on reliability and operational excellence delivered an 88 percent operating rate for the quarter and, excluding the impact of divestitures, the highest production volume quarter in the Company’s history.
  • Dow returned $506 million to shareholders through its highest regular quarterly paid dividend to date.

Comment

Andrew N. Liveris, Dow’s chairman and chief executive officer, stated:

“Dow’s resolute focus on our priorities was once again evident, with this quarter marking the fourteenth in a row of year-over-year operating EPS and EBITDA margin increases. The strength of our businesses and business model was on display across our broad geographic footprint and targeted end-markets, from transportation to agriculture to construction. These results are notable in the context of the lower hydrocarbon and crop price environments and underscore the power of Dow’s unique combination of differentiation and integration, coupled with a focused market participation, driven by our innovation agenda and a disciplined productivity mindset.

“Equally important, throughout the quarter our teams achieved additional milestones on our near-term earnings growth drivers, including progressing our investments in Saudi Arabia and the U.S. Gulf Coast, commercializing our robust innovation pipeline and further enhancing our operational excellence performance.

“Finally, we remain on track with our historic Dow Corning and DowDuPont transactions. In both cases, the joint implementation teams made significant progress in defining the plans to accelerate integration and synergy capture activities. We remain excited about the potential for these once-in-a-generation strategic actions to further enhance the demonstrated performance, strength and resilience of our businesses and our business model.”

Three Months Ended
Mar 31, Mar 31,

In millions, except per share amounts

2016 2015
Net Sales $10,703 $12,370
Adjusted Sales [(6)] $10,658 $11,638
Net Income Available for Common Stockholders $169 $1,393
Net Income Available for Common Stockholders,

Excluding Certain Items

$993 $974
Earnings per Common Share – Diluted $0.15 $1.18
Operating Earnings per Share $0.89 $0.84

[(6)] “Adjusted Sales” is “Net Sales” adjusted for divestitures and acquisitions.

Review of First Quarter Results

Dow reported earnings per share of $0.89 [] on an operating basis, or earnings per share of $0.15 on a reported basis. This compares with earnings per share of $0.84 on an operating basis in the year-ago period, or $1.18 per share on a reported basis.

EBITDA was $2.3 billion on an operating basis, or $1 billion on a reported basis, compared to $2.4 billion on an operating basis in the year-ago period. Operating EBITDA improvement from targeted end-markets such as transportation, infrastructure and electronics was more than offset by the impact of lower equity earnings and divestitures.

Operating EBITDA margin [] expanded from 19 percent to 21 percent – the highest level in more than a decade – reflecting disciplined margin management and the benefits of self-help actions. Gains were delivered in most operating segments, led by Consumer Solutions (up 400 basis points), Agricultural Sciences (up 250 basis points), Infrastructure Solutions (up 220 basis points) and Performance Plastics (up 70 basis points). These gains more than offset a decline in Performance Materials & Chemicals (down 130 basis points), which was primarily impacted by lower equity earnings related to a reduced contribution from MEGlobal and Sadara start-up expenses.

Sales were $10.7 billion, down 13 percent versus the year-ago period, or 8 percent excluding the impact of divestitures and acquisitions. The decrease was primarily due to local price declines, of which the largest contributor was the Hydrocarbons business, and ongoing global currency headwinds.

Research and Development (R&D) expenses and Selling, General and Administrative (SG&A) expenses together decreased versus the year-ago period by $74 million excluding the impact of Certain Items, or $32 million on a reported basis. This reduction was due primarily to targeted cost savings and divestitures.

Dow's focus on reliability and operational excellence delivered an 88 percent operating rate for the quarter and, excluding the impact of divestitures, the highest production volume quarter in the Company’s history.

Certain Items in the quarter reflected a charge for the urethane matters legal settlements and a charge for costs associated with portfolio and productivity actions. (See Supplemental Information at the end of the release for a description of Certain Items affecting results.)

Dow returned $506 million to shareholders through its highest regular quarterly paid dividend to date.

Agricultural Sciences

Agricultural Sciences reported first quarter sales of $1.6 billion, down from $1.9 billion in the year-ago period. Sales were impacted by high channel inventories, currency headwinds and lower crop commodity prices.

Crop Protection volume was lower, primarily driven by reduced industry-wide demand for herbicides. Seeds volume declined modestly on soft demand for corn and soybeans. The business’s innovation pipeline continued to commercialize new products with the launch of ENLIST™ cotton in the United States in the quarter.

Operating EBITDA for the segment was $403 million, nearly flat with $409 million in the year-ago period. Focused productivity actions in the business mostly offset the impact of challenging market conditions and currency headwinds.

Equity earnings for the segment were $7 million in the quarter.

Consumer Solutions

Consumer Solutions reported first quarter sales of $1.05 billion, down slightly from $1.12 billion in the year-ago period as demand for differentiated solutions in the automotive market sector was more than offset by local price pressures and currency headwinds.

Dow Automotive Systems achieved volume gains on above-market demand for key business technology platforms enabling light-weighting and sound-dampening solutions. Consumer Care reported higher demand in the food, home and personal care market sectors. This was more than offset by lower sales in the pharmaceutical chain, driven by inventory de-stocking, and the business’s decision to reduce its participation in industrial market segments with the closure of a U.S. facility in the fourth quarter of 2015. Dow Electronic Materials saw a modest decline in volume as mix benefits from continued momentum in new business wins for semiconductor and display technologies were more than offset by a decline in demand for applications tied to personal computer components.

Operating EBITDA for the segment was an all-time quarterly record of $310 million, up from $286 million in the year-ago period, reflecting robust demand for Dow’s innovative product portfolios for the automotive and semiconductor market sectors.

Equity earnings for the segment were $20 million, flat versus the year-ago period.

Infrastructure Solutions

Infrastructure Solutions reported first quarter sales of $1.6 billion, down from $1.8 billion in the year-ago period. Sales gains in Dow Building & Construction were more than offset by declines in other businesses.

Dow Building & Construction delivered double-digit volume growth with increases across all geographic areas and strong demand for both cellulosics- and acrylics-based construction chemicals and STYROFOAM™ insulation. Energy & Water Solutions reported volume declines resulting from soft demand in oil and gas exploration market sectors, particularly in the United States. Dow Coating Materials achieved volume increases in both the industrial and architectural market sectors, driven by end-market demand and reflecting a strategy to broaden Dow’s participation in these markets. Performance Monomers reported a volume decrease primarily due to the business’s strategic decision to reduce its merchant monomer exposure.

Operating EBITDA for the segment was $293 million, essentially flat with $295 million in the year-ago period, as higher earnings from the segment’s businesses, driven by strength in construction related market sectors and self-help measures nearly overcame the impact of lower equity earnings.

Equity earnings for the segment were $51 million, down from $76 million in the year-ago period, reflecting a lower contribution from Dow’s share of settlements of long-term polysilicon sales agreements related to Hemlock Semiconductor.

Performance Materials & Chemicals

Performance Materials & Chemicals reported first quarter sales of $2.2 billion, down from $3.2 billion in the year-ago period, reflecting the impact of the split-off of Dow Chlorine Products. Excluding the impact of divestitures and acquisitions, sales were down 15 percent, driven by pricing declines.

Excluding divestitures and acquisitions, volume increased for the segment behind gains in most businesses. Polyurethanes delivered volume growth on double-digit increases in demand for downstream, higher-margin system house applications and specialty polyols, as the business continued to shift its mix into higher-value, differentiated offerings. Industrial Solutions reported volume declines, driven by lower de-icing fluids demand due to a warmer winter, as well as lower ethylene oxide catalyst sales. Chlor-Alkali and Vinyl achieved double-digit volume gains reflecting stronger European vinyl chloride monomer and caustic soda demand.

Operating EBITDA for the segment was $335 million, down from $535 million in the year-ago period, on the impact of lower equity earnings, divestitures and margin compression in less-differentiated products.

Equity losses for the segment were $31 million, down from equity earnings of $55 million in the same quarter last year, on increases in Sadara spending ahead of unit start-ups, the change in ownership of the MEGlobal joint venture and lower MEG prices.

Performance Plastics

Performance Plastics reported first quarter sales of $4.2 billion, down from $4.3 billion in the year-ago period. Sales for the segment declined as gains in most businesses were more than offset by lower hydrocarbon pricing.

Excluding acquisitions and divestitures, the Performance Plastics segment delivered double-digit volume growth with gains across all businesses. Dow Packaging and Specialty Plastics had a first quarter record for polyethylene sales volume, based on continued operational reliability and robust demand for its differentiated products. Gains for the business were realized in most geographic areas, led by North America and Asia Pacific. Dow Elastomers achieved volume gains driven by strong demand for its innovative technologies that enhance the customer’s experience in automotive components and provide the platform for high-performance athletic footwear. Dow Electrical and Telecommunications delivered double-digit volume gains for telecommunications and power applications. The Hydrocarbons and Energy businesses reported volume gains with growth in all geographic areas.

Operating EBITDA for the segment was a first quarter record of $991 million, up from $985 million in the year-ago period. Operating EBITDA grew as demand for Dow’s differentiated products in the transportation and infrastructure market sectors more than offset lower equity earnings.

Equity losses for the segment were $1 million, down from equity earnings of $23 million in the same quarter last year, on increases in Sadara spending ahead of unit start-ups.

Outlook

Commenting on the Company’s outlook, Liveris said:

“Looking ahead, we expect continued strength in the consumer driven end-markets where we have demonstrated a narrower and deeper focus, especially in our materials businesses that provide innovative products to the packaging, transportation and infrastructure markets. We...


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