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Dow Announces Fourth Quarter Results

Published on 2011-02-07. Author : SpecialChem

The Dow Chemical Company achieved sales of $13.8 billion in the fourth quarter of 2010, a 22 percent increase compared with the same period last year. Top-line growth was driven by a 12 percent increase in volume and a 10 percent increase in price. All operating segments reported double-digit sales gains except Coatings and Infrastructure, which rose 6 percent. Double-digit sales increases were also reported in all geographic areas, with the largest gain in North America (25 percent).

At a Company level, volume grew 12 percent, with gains reported in all operating segments except Coatings and Infrastructure (down 1 percent) and Chemicals and Energy (down 3 percent). Volume for the combined Performance segments rose 11 percent versus the year-ago period, driven by gains in Health and Agricultural Sciences and Electronic and Specialty Materials.

On a geographic basis, double-digit volume growth was reported in all geographic areas except Asia Pacific, which was up 9 percent. Growth in the emerging geographies continued to be robust, particularly for the Performance segments, which reported a combined 13 percent increase in volume. Volume growth also continued to be notable in Latin America and Eastern Europe, both of which reported double-digit increases.

Price rose 10 percent at the Company level. Price gains were broad-based, with increases in every geographic area, led by North America (12 percent) and Latin America (11 percent). All operating segments reported year-over-year price increases except Health and Agricultural Sciences (down 1 percent) and Electronic and Specialty Materials, which was flat with the year-ago period. The largest price gains were reported in the Basics segments, which increased a combined 16 percent. The Company's price gains outpaced a $685 million increase in purchased feedstock and energy costs.

At a Company level, EBITDA excluding certain items rose $441 million, or 30 percent, to $1.9 billion. This represents the highest fourth quarter EBITDA since 2007. At the Company level, EBITDA margin expanded 209 basis points year-over-year. The Company has achieved year-over-year EBITDA margin expansion for seven consecutive quarters.

EBITDA margin expansion in the combined Performance segments was driven by Performance Systems and Performance Products, which together reported a 26 percent increase in EBITDA and margin expansion of more than 230 basis points. The combined Performance segments have now reported year-over-year margin expansion in six out of the last seven quarters.

Net income from continuing operations excluding certain items was $625 million, more than double the $286 million result in the fourth quarter of 2009.

Reported earnings for the quarter were $0.37 per share, compared with $0.08 per share in the same period last year. The Company earned $0.47 per share in the quarter, excluding certain items. This compares with earnings of $0.18 per share in the same quarter last year, excluding certain items.

Certain items in the current quarter consisted of asset impairments and related costs equivalent to $0.06 per share; an adjustment to the 2008 restructuring charge, which did not impact earnings per share; Rohm and Haas integration costs of $0.03 per share; an asbestos-related credit of $0.03 per share; additional costs and working capital adjustments of $0.01 per share related to the divestiture of Styron; and a $0.03 per share charge related to an obligation associated with a past divestiture.

Dow's global operating rate was 81 percent, up 5 percentage points year-over-year. Sequentially, the Company's operating rate fell 5 percentage points, in line with typical seasonal patterns.

Research and Development (R&D) expenses rose 6 percent versus the same period last year. The Company continued to preferentially invest in the technology pipeline of its Performance businesses, most notably Health and Agricultural Sciences, which reported a 14 percent increase in R&D investment.

Selling, General and Administrative (SG&A) expenses declined 6 percent from the same period last year despite a 3 percent increase in Health and Agricultural Sciences, which was driven by new product launches and commercial activities related to recent seed acquisitions, and increased spending to support the upcoming commercial launch of DOW™ POWERHOUSE™ solar shingles.

Equity earnings were $313 million, an all-time quarterly record for the Company. This was led by strong performance from Dow Corning, MEGlobal and the Company's joint ventures in Kuwait. The Company's full-year equity earnings of $1.1 billion represent a 54 percent increase from the previous year, excluding certain items in 2009.

The Company continued to surpass its growth synergy targets, delivering $1.1 billion in sales on a run-rate basis, or more than double the Company's year-end target of $500 million. Sequentially, the Company's run-rate grew 10 percent.

Net debt to total capitalization declined to 42.6 percent, or 240 basis points below the Company's year-end goal, and the lowest level since the first quarter of 2009. This was primarily due to $1.8 billion of cash flow from operating activities.

"This was a strong quarter for Dow and marked another significant milestone for our Company as we continued to deliver earnings growth," said Andrew N. Liveris, Dow's chairman and chief executive officer. "Broad-based sales increases across the globe and robust volume gains reflected the strength of our transformed business portfolio and geographic presence. We delivered record sales for both the quarter and the year in emerging markets, while our leadership positions in North America and Europe enabled us to capitalize on the economic recovery that appears to be gaining traction.

"We are extremely pleased that we have achieved our seventh consecutive quarter of year-on-year margin expansion. This, coupled with record levels of equity earnings and $1.8 billion in cash from operations, demonstrates that Dow's performance trajectory for earnings growth is firmly in place and is delivering."

Electronic and Specialty Materials

Sales in the Electronic and Specialty Materials segment were $1.3 billion, up 13 percent from the same quarter last year, driven entirely by volume. The recovery in electronics end-markets continued, with solid double-digit demand growth reported in all Electronic Materials business units. In Asia Pacific, the business continued to report strong demand growth, with volume increasing 25 percent versus the year-ago period. The strongest demand growth in this region continued to be in the Display Technologies and Growth Technologies business units, both of which delivered volume improvements of more than 45 percent, driven in part by trends toward miniaturization that favor the business' advanced packaging growth platform. Electronic Materials achieved several customer wins in the quarter related to next-generation chemical mechanical planarization pads, photoresists for leading edge memory production, and optical films used in liquid crystal display (LCD) televisions.

Sales in Specialty Materials rose 8 percent versus the same period last year, with volume gains in all global business units. Demand growth was also reported in all geographic areas. Dow Water and Process Solutions reported double-digit volume growth, with notable increases in demand for its reverse osmosis membranes and ion exchange resins, particularly in Asia Pacific and North America. Dow Microbial Control reported double-digit volume gains, with growth in all geographic areas. The business continued to see demand strength in energy end-markets in North America, as well as benefits from growth in personal care applications and trends toward more sustainable solutions.

Equity earnings were $126 million, reflecting continued solid performance at Dow Corning. This compares with equity earnings of $133 million in the same period last year. EBITDA for the segment was $424 million, which compares with EBITDA of $390 million in the same period last year.

Coatings and Infrastructure

Sales in Coatings and Infrastructure were $1.2 billion, up 6 percent compared with the same period last year. Volume fell 1 percent year-over-year, and price was up 7 percent. Volume gains in Dow Adhesives and Functional Polymers and Dow Building and Construction were not enough to offset a decline in Dow Coating Materials, which was impacted by a decrease in industrial coatings volume as the business focused on pricing in the epoxy envelope.

Dow Adhesives and Functional Polymers reported the largest demand growth in Latin America and Asia Pacific, partly due to solid demand for pressure sensitive adhesives and continued growth in thermal paper applications. Dow Building and Construction reported double-digit demand growth in all geographic areas except North America, where end-market conditions remain sluggish. Construction chemicals continued to benefit from trends toward remodeling, with year-over-year demand growth for these products exceeding 20 percent. Demand in Asia Pacific for STYROFOAM™ brand insulation products grew solidly as stringent building codes continued to support demand. Dow Coating Materials reported sales gains in both architectural and industrial coatings, led by solid price increases, particularly in industrial coatings where favorable supply/demand fundamentals in epoxy are driving pricing trends. In architectural coatings, volume gains were reported in Asia Pacific and North America, areas where the business continued to benefit from newly-launched products related to unique innovations for residential paint end-markets. In industrial coatings, a decline in volume was more than offset by higher pricing, as double-digit price gains were reported in all geographic areas.

EBITDA for the segment was $128 million, which compares with EBITDA of $123 million in the same period last year.

Health and Agricultural Sciences

Health and Agricultural Sciences had record fourth quarter sales of $1.3 billion, up 19 percent compared with the year-ago period. Volume increased 20 percent, with price down 1 percent. All geographic areas reported double-digit volume growth versus the same period last year.

Agricultural chemical sales growth was led by Latin America, with 26 percent growth in the peak selling quarter. The region's growth came from strong range and pasture sales, the introduction of new formulations, and a return to normal weather in Argentina following drought conditions in the prior year. New products supported 13 percent sales growth in agricultural chemicals in North America. Asia Pacific benefited from new product sales across the region, and heavy rain in Australia drove strong demand for fungicides. Globally, agricultural chemical new product sales were up 24 percent versus the same quarter last year, and up 35 percent for the full-year, exceeding the original goal of reaching $400 million in revenue from new molecules in the year.

Seeds, Traits and Oils posted 32 percent sales gains driven by growth in corn and cotton. The positive performance of new SmartStax™ hybrids in North America and a shift in Latin America toward greater use of Herculex™ insect protection drove increased volume growth for corn. Cotton continued to experience strong sales growth with the success of Widestrike™ insect protection, while the canola business delivered double-digit gains due to higher sales of Nexera™ seeds.

EBITDA for the segment was $72 million, which compares with $69 million in the year-ago period. Full-year EBITDA of $640 million includes more than $125 million in investments for growth.

™ SmartStax multi-event technology developed by Dow AgroSciences and Monsanto. SmartStax is a trademark of Monsanto Technology, LLC.

Performance Systems

Sales in Performance Systems were $1.6 billion, up 17 percent compared with the same quarter last year. Volume increased 9 percent and price was up 8 percent. Volume increased in all geographic areas and in all businesses. Dow Automotive Systems reported a double-digit improvement in volume, led by strong demand in North America. The business also reported demand growth for its technology-differentiated products used in acoustical, glass bonding and body structure applications. Additionally, the business reported a demand increase of more than 20 percent for its polyurethane foams and systems formulations. Dow Elastomers reported sales growth versus last year, primarily driven by volume increases in North America and Europe, Middle East and Africa (EMEA). Dow Formulated Systems reported sales gains in all geographic areas, led by North America and Asia Pacific. The business continues to see robust demand for wind energy applications, particularly in Asia Pacific. A significant rebound in energy efficiency products (e.g., rigid panel insulation) and in road and bridge protection applications drove the expansion in North America. In EMEA, the business reported particularly robust demand for rigid panel insulation in Russia. Dow Wire and Cable reported double-digit sales gains, driven by demand for power applications. Demand growth in the emerging regions was led by Latin America, as well as EMEA.

EBITDA for the segment was $198 million in the quarter, which includes a $9 million asset impairment and an $8 million charge related to the Styron divestiture. This compares with EBITDA of $149 million in the year-ago period.

Performance Products

Sales in Performance Products were $2.7 billion, up 23 percent compared with the same period last year. Volume rose 11 percent and price rose 12 percent. Double-digit demand growth was reported in North America and EMEA. Volume also increased in all businesses except Performance Monomers, which was flat, and Amines as the availability of ethylene oxide was limited due to the implementation of Dow's ethylene oxide-only technology on the U.S. Gulf Coast. Polyglycols, Surfactants and Fluids reported double-digit sales increases in Asia Pacific and EMEA. Demand in these areas was particularly strong for lubricants, surfactants, and high temperature heat transfer fluids used in concentrated solar power applications. Epoxy reported a strong upturn in sales, with volume growth of more than 40 percent, led by EMEA and North America. Volume growth for phenol remained strong as demand for downstream end-uses such as polycarbonate for automobiles, optical media and electronics remained healthy in the quarter. Polyurethanes reported a strong increase in sales, with volume gains across the business. Demand growth was recorded in all geographic areas except Asia Pacific, as the business implemented price gains to recapture margin. Oxygenated Solvents reported sales increases across all geographic areas, with volume growth of more than 25 percent. This was driven by growth in electronics, health and nutrition, oil additives, de-icers and refrigerant end-uses.

EBITDA for the segment was $264 million, which includes asset impairments and related costs of $82 million and a $13 million charge related to the Styron divestiture. This compares with EBITDA of $303 million in the year-ago period, which included a goodwill impairment loss of $7 million and a gain of $5 million relating to the Company's sale of OPTIMAL.

Plastics

Sales in Plastics were $2.9 billion, up 20 percent from the same quarter last year. Volume increased 4 percent, while price rose 16 percent. Polyethylene reported a significant sales increase, led primarily by price gains in all geographic areas resulting from tight industry supply and in response to higher feedstock costs. The Company's focus on reliability continued in the quarter, as several manufacturing units delivered record levels of production. In addition, Dow's joint venture, Siam Polyethylene Company Limited, successfully started up its solution polyethylene train in Thailand in the quarter. Polypropylene reported a double-digit sales gain driven by both pricing and continued strong demand in all geographic areas due to tight raw material supply and growing demand in emerging regions for automotive, consumer durable goods and packaging end-markets.

Equity earnings for the segment were $68 million, compared with a loss of $1 million in the year-ago period, which was reduced $65 million for an impairment related to Equipolymers. Full-year equity earnings were higher, largely due to the Company's joint ventures in Kuwait, which benefited from the first full year of capacity expansions versus last year. Plastics EBITDA for the quarter was $765 million, which includes a $5 million charge related to the Styron divestiture. This compares with $548 million in the year-ago period, which included a $65 million charge related to Equipolymers.

Chemicals and Energy

Sales in the Chemicals and Energy segment were $932 million, up 13 percent from the same year-ago period. Volume decreases of 3 percent were more than offset by price gains of 16 percent. The Chlor-Alkali/Chlor-Vinyl business reported higher sales driven by solid price gains of 20 percent and higher volume in North America and EMEA. The largest price improvement was seen in caustic soda, as improving demand in alumina and pulp and paper industries, coupled with tight supply, supported pricing initiatives. Vinyl chloride monomer (VCM) sales were higher versus same period last year due to significant U.S. polyvinyl chloride (PVC) export demand that offset continued weakness in construction end-markets in the United States. The Chlorinated Organics business reported higher sales due to improved pricing in refrigerants, fluoropolymers and solvents applications. Ethylene Oxide/Ethylene Glycol (EO/EG) volumes were down from the year-ago period, mainly due to the shutdown of capacity in the United Kingdom. This was partly offset by higher pricing due to improved industry supply/demand fundamentals.

Equity earnings were $100 million for the quarter, compared with $69 million in the year-ago period, due to improved results in MEGlobal and EQUATE. EBITDA for the quarter was $173 million. This compares with EBITDA in the year-ago period of $20 million, which included $6 million of the Company's gain on the sale of OPTIMAL.

Review of Results for 2010

For the full-year 2010, Dow reported sales of $53.7 billion. Excluding the impact of divestitures, sales rose 26 percent versus the prior year, with double-digit gains in all operating segments except Health and Agricultural Sciences, which rose 7 percent. Sales increased more than 20 percent in each of the geographic areas. Sales in the emerging geographies surpassed $16 billion in the year, setting an all-time record for the Company. Additionally, sales in Asia Pacific topped $9 billion in the year, also representing an all-time record.

At the Company level, volume rose 12 percent, with double-digit growth reported in all geographic areas except Latin America, which was up 8 percent. All Performance operating segments reported double-digit volume growth except Coatings and Infrastructure, which reported an increase of 4 percent due to continued weakness in the construction industry.

Price rose 14 percent at the Company level, with broad-based gains in all geographic areas, led by North America (16 percent) and EMEA (15 percent). All operating segments reported year-over-year price improvements except for Health and Agricultural Sciences (down 4 percent) and Electronic and Specialty Materials, which was flat. Price increases more than offset a $5 billion increase in purchased feedstock and energy costs. Gains were most notable in the Basics segments, which collectively reported a year-over-year increase of 29 percent.

EBITDA excluding certain items totaled $7.5 billion, a 36 percent improvement versus 2009 EBITDA on a pro forma basis. For the full year, the Company expanded EBITDA margin more than 200 basis points. All operating segments reported year-over-year margin expansion with the exception of Coatings and Infrastructure. The Company has achieved year-over-year EBITDA margin expansion for seven consecutive quarters.

Dow reported full-year earnings of $1.72 per share, or $1.97 per share excluding certain items. Reported earnings for 2009 were $0.32 per share, or $0.63 per share excluding certain items and discontinued operations.

Dow's global operating rate was 83 percent, up 9 percentage points versus 2009, as key end-markets continued to recover.

The Company continued to invest for growth in 2010. R&D expenses rose 6 percent versus pro forma spending in the prior year, reaching nearly $1.7 billion. SG&A expenses fell 5 percent versus 2009 pro forma spending, despite increased spending in Health and Agricultural Sciences to support new product launches and commercial activities related to recent seed acquisitions.

Outlook

Commenting on the Company's outlook, Liveris said: "Dow is well-positioned for the improving economic climate and will continue to benefit from growth in high-margin sectors, such as electronics and packaging, driven by innovative products and technologies, coupled with our expanding presence in emerging markets. We demonstrated the success of our strategy over the course of 2010, as volume grew and margins expanded in our combined Performance segments, and our Basics businesses benefited from advantaged feedstocks in a much improved demand environment.

"Looking ahead, we expect growth will continue, driven by a broad range of leading end-markets in emerging geographies such as China, India, Eastern Europe and Brazil. Signs of improvement in industrial and B2B markets in North America and Europe give us optimism that we will see continued growth in these developed markets. Overall, the world continues to recover to pre-recession levels. However, with inflation concerns in emerging geographies, lingering unemployment issues in the United States and sovereign debt issues in Europe, we remain prepared for a reversal in momentum.

"We have delivered a transformed portfolio that is increasingly targeted towards growth geographies, sectors and markets - while remaining well-balanced to mitigate against uncertainty. In addition to the Rohm and Haas acquisition, we have directly invested more than $5 billion over the last two years to address these growth opportunities and further strengthen our leadership positions. The Company's success will continue to be driven by our transformed business portfolio, our expanding presence in emerging geographies and our investments in innovations which are aimed at the intersection of the greatest societal needs and discontinuous business opportunities."

About Dow

Dow combines the power of science and technology with the "Human Element" to passionately innovate what is essential to human progress. The Company connects chemistry and innovation with the principles of sustainability to help address many of the world's most challenging problems such as the need for clean water, renewable energy generation and conservation, and increasing agricultural productivity. Dow's diversified industry-leading portfolio of specialty chemical, advanced materials, agrosciences and plastics businesses delivers a broad range of technology-based products and solutions to customers in approximately 160 countries and in high growth sectors such as electronics, water, energy, coatings and agriculture. In 2010, Dow had annual sales of $53.7 billion and employed approximately 50,000 people worldwide. The Company's more than 5,000 products are manufactured at 188 sites in 35 countries across the globe. References to "Dow" or the "Company" mean The Dow Chemical Company and its consolidated subsidiaries unless otherwise expressly noted.

Forward Looking statements

The forward looking statements contained in this document involve risks and uncertainties that may affect the Company's operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the Company's expectations will be realized. The Company assumes no obligation to provide revisions to any forward looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

Source: Dow


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