Dow Chemical Company (The) (DOW)

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The Dow Chemical Company (DOW)

Q4 2008 Earnings Call

February 03, 2009 10:00 AM ET

Executives

Howard Ungerleider - Vice President of Investor Relations

Andrew N. Liveris - Chief Executive Officer and Chairman

Geoffery E. Merszei - Executive Vice President and Chief Financial Officer

Analysts

David Begleiter - Deutsche Bank

Frank Mitsch - BB&T Capital Markets

Sergey Vasnetsov - Barclays Capital

Jeffrey Zekauskas - JPMorgan

Michael Judd - Greenwich Consultants

Kevin McCarthy - Bank of America

John Roberts - Buckingham Research

Presentation

Operator

Good day everyone and welcome to The Dow Chemical Company's Fourth Quarter 2008 Earnings Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Howard Ungerleider, Vice President of Investor Relations. Please go ahead sir.

Howard Ungerleider

Thanks Jennifer. Good morning everyone and welcome. As usual, we are making this call available to investors and the media via webcast. This call is the property of The Dow Chemical Company. Any redistribution, retransmission or rebroadcast of this call in any form without Dow's expressed written consent is strictly prohibited.

On the call with me today are Andrew Liveris, Dow's Chairman and CEO; Geoffery Merszei, Dow's Executive Vice President and Chief Financial Officer and Jeff Tate, Director, Investor Relations.

Around 6:30 this morning, February 3rd, our earnings release went out on PR Newswire and was posted on the Internet on Dow's website, dow.com.

Also, earlier this morning, we filed our answer to the lawsuit filed by Rohm and Haas. This answer is also posted on our website. We have prepared some slides to supplement our comments on this conference call. The slides are posted on our website, available on the Presentations page of the Investor Relations section or through the link to our webcast.

As you know, some of our comments today may include statements about our expectations for the future. Those expectations involve risks and uncertainties. We can't guarantee the accuracy of any forecasts or estimates and we don't plan to update any forward-looking statements during the quarter. If you could like more information on the risks involved in forward-looking statements, please see our SEC filings.

In addition, some of our comments may reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release or on our website. Our earnings release as well as recent SEC filings and annual reports are available on the Internet at dow.com in the Financial Reports page of the Investor Relations section.

On slide three, I would like to run through the agenda for today's call. As is our year-end practice, Andrew will lead us through a 2008 year-end review and provide an update on several specific actions we have taken to address the current global financial and economic crisis. He will then discuss the outlook for the first quarter of 2009 and beyond as well as the next steps related to our Basic Plastics joint venture and the Rohm and Haas transaction.

Before he does, I would like to very briefly cover the fourth quarter and the key drivers of our performance in the period beginning on slide four.

Sales for the quarter were $10.9 billion, down 23% from the same quarter last year. Declines were reported in all geographic areas and in all operating segments except Agricultural Sciences, which posted record fourth quarter sales of 885 million. Volume declined 17% with declines in all operating segments except Agricultural Sciences and Hydrocarbons and Energy and in all geographic areas. Price declined 6% as price increases in Performance Plastics, Performance Chemicals and Ag Sciences were more than offset by declines in the basics businesses. Purchased feedstock and energy costs fell by 23% or $1.2 billion versus the same quarter last year.

Now let's walk through each of our reporting segments. In Performance Plastics, on slide five, prices held in the quarter despite the drop in feedstock and energy costs. Further deterioration of the automotive and construction sectors, however, unfavorably impacted volumes in the quarter. And in response to the decline in demand we experienced, we reduced the operating rates to historically low levels, which resulted in increase in our unabsorbed fixed costs.

In Performance Chemicals on slide six, double-digit price increases were reported in nearly all geographies as strength in Dow Water Solutions as well as food and pharmaceutical applications served by Dow Wolff Cellulosics continued. However, this good news was more than offset by declines in volume, a result of demand destruction which negatively impacted profitability.

Turning now to slide seven, Agricultural Sciences set another fourth quarter sales record, driven by growth in Seeds & Traits. Dow AgroSciences continued to deploy its growth agenda with two more acquisitions in the quarter, bringing the total number of acquisitions to nine since May 2007. New products such as aminopyralid, penoxsulam, pyroxsulam and spinetoram also continued to ramp up successfully.

Results in Basic Plastics on slide eight were impacted by volume declines and inventory destocking brought about by the global economic environment as well as declines in price, due in large part to the drop in feedstock and energy costs.

In Basic Chemicals on slide nine, the story was similar. Strong caustic soda prices were more than offset by lower demand in vinyl chloride monomer used in PVC production for housing and construction applications. Further declines in EO/EG [Ethylene Oxide/Ethylene Glycol] demand for polyester fiber production in Asia also hurt overall operating results.

All of this led to a reported loss of $1.68 per share as you can see on slide 10. Excluding certain items, the loss was $0.62 per share.

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