Dow Chemical Company (The) (DOW)

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The Dow Chemical Co. (DOW)

Q2 2009 Earnings Call

July 30, 2009; 10:00 am ET


Andrew Liveris - Chairman & Chief Executive Officer

Geoffery Merszei - Executive Vice President &Chief Financial Officer

Heinz Haller - Executive Vice President of Performance Products and Systems

Jeff Tate - Director in Investor Relations

Howard Ungerleider - Vice President of Investor Relations


PJ Juvekar - Citigroup

Don Carson - UBS

Bob Koort - Goldman Sachs

Sergey Vasnetsov - Barclays Capital

John McNulty - Credit Suisse

Frank Mitsch - BB&T Capital Markets

Peter Butler - Glen Hill Investment

David Begleiter - Deutsche Bank

Kevin McCarthy - Bank of America/Merrill Lynch

Jeff Zekauskas - JP Morgan



Good day and welcome to the Dow Chemical Company’s second quarter 2009 earnings results conference call. Today’s call is being recorded. At this time, I would like to turn the conference over to Mr. Howard Ungerleider, Vice President of Investor Relations, please go ahead, sir.

Howard Ungerleider

Thanks Regina. Good morning everyone and welcome. As usual, we’re 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 express 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; Heinz Haller, Executive Vice President of Performance Products and Systems; and Jeff Tate, Director in Investor Relations. Around 6.30 this morning, July 30 our earnings release went out on PR Newswire and was posted on the Internet on Dow’s website,

We have prepared some slides to supplement our comments on this conference call. The slides are posted on our website 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’d 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 of the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release or on our website. Our earnings releases as well as recent SEC filings are available on the Internet at

Now, I would like to run through the agenda for today’s call on slide three. Andrew will begin the call with a summary of our business results and our numerous significant achievements of the last 90 days.

Geoffery will then provide additional financial context around our quarterly results, our restructuring and cost synergy efforts, as well as our improving capital structure. As you will recall, each quarter we are focusing on elements of our portfolio that will give you better insight into key drivers of our profitability.

Last quarter, we highlighted our new Advanced Materials division and today we have Heinz, who will share elements of profitability and market success across our Performance Products and Systems portfolio of businesses. Andrew will then wrap up our prepared remarks with our outlook and what to expect in the coming quarter.

With that, I’ll hand the call over to Andrew.

Andrew Liveris

Thank you, Howard and good morning everyone. The second quarter was one of, if not the, most active quarters in our company’s history. If you look at slide four, I can run through what happened. I’m really very pleased to report that Dow has made tremendous progress against a number of strategic goals that we laid out earlier in the year.

We delivered positive operating earnings in the quarter; we accelerated cost reductions from restructuring activities and Rohm and Haas related synergies and we are ahead of schedule on both fronts. We launched both successful debt and equity issuances and eliminated all of the perpetual preferred stock from our balance sheet, improving EPS by more than $0.05 per share on a go forward basis.

We reduced our $9.2 billion bridge loan by $5 billion. We signed four definitive divestitures agreements that will further deleverage our balance sheet, and we remain on track to deliver $4 billion in asset sales by the end of the year. We completed an enterprise wide strategic review that confirmed we are on the right path to earnings growth.

Today, Dow is comprised of an excellent mix of high-margin, high-growth, lower earnings volatilities businesses. We will continue to preferentially invest in our Advanced Materials, AgroSciences and Performance portfolios to further increase the percentage of our business that comes from these units.

Businesses like Dow Wolff Cellulosics, Dow Water & Process Solutions, the evolving portfolio of Automotive systems, Polyurethane and Epoxy systems and Dow Solid Solutions all have the power to reshape our earnings profile even further toward one that is built on science and technology.

Our ultimate goal, to make Dow a company that is rewarded for its intellectual property and the value those ideas deliver. At the same time, we clearly know what is non-strategic and we are taking quick action to divest those businesses consistent with our practice of active portfolio management.

We will continue to make decisions that move Dow away from its legacy of heavily-integrated, capital-intensive business models. Our asset light strategy would deliver on this goal and we will remain committed to forming a new venture for our ethylene and ethylene derivatives business and today, we are announcing a new path forward for our styrene and aromatics envelopes as well.

I will speak more on this in a moment. So that’s the quick review of the progress we have made at a strategic level.

Let me now speak to our results in the second quarter on slide five. On an operating basis, which excludes certain items we were profitable, delivering earnings of $0.05 per share. This was the result of accelerated cost reductions, faster synergy achievements and volume gains versus the prior quarter. In fact, this was the first time, since the second quarter of last year where we posted sequential volume gains.

Our Electronic and Specialty Materials, Coatings and Infrastructure and Performance Systems segments all posted impressive volume gains of at least 20% versus last quarter and our Basic Plastics segment also showed marked improvement sequentially, with EBITDA up more than 230% on strength in consumer and industrial packaging.

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