The Dow Chemical Company (DOW)
Q3 2009 Earnings Call Transcript
October 22, 2009 10:00 am ET
Howard Ungerleider – VP, IR
Andrew Liveris – Chairman and CEO
Geoffery Merszei – EVP and CFO
P.J. Juvekar – Citi
Robert Koort – Goldman Sachs
Don Carson – UBS
David Begleiter – Deutsche Bank
John McNulty – Credit Suisse
Sergey Vasnetsov – Barclays
Peter Butler – Glen Hill Investment
Jeff Zekauskas – JPMorgan
Kevin McCarthy – Banc of America
Bill Young – ChemSpeak
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Thanks, Lisa. 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 Chief Executive Officer; Geoffery Merszei, Dow’s Executive Vice President and Chief Financial Officer; and David Johnson, Director and Investor Relations.
Around 6:30 this morning, October 22, our earnings release went out on PRNewswire and was posted on the Internet on Dow's Web site, Dow.com.
We have prepared some slides to supplement our comments in this conference call. The slides are posted on our Web site 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 would 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 Web site. Our earnings release as well as recent SEC filings are available on the Internet at Dow.com. The agenda for today's call is on slide #3.
Now I will have the call over to Andrew.
Thanks, Howard, and good morning, everyone. On slide #4 I refer to the fact that the third quarter was another quarter of continued improvement for the Company and we made meaningful progress on a number of fronts. We delivered sequentially better results for the third quarter in a row, driven in part by our recently acquired business units that captured early cycle growth and a strong rebound in demand in emerging geographies.
Operating earnings of $0.24 per share were once again improved versus the prior quarter, reflecting the benefits of our broad geographic presence and our vast portfolio, which enabled us to capitalize on markets that are showing an economic rebound.
Specific areas of strength include Electronics and Coatings, where government stimulus spending is spurring domestic demand in China and other Asian economies. We achieved pricing power in the quarter, with price up 6% on a sequential basis. Now while volume was flat in China versus last quarter on a year-over-year basis, volume grew an impressive 10%.
And significantly we generated more than $600 million in cash from operations in the quarter. Our global operating rate improved 3 points to 78%, reflecting both rapid actions to rightsize our manufacturing footprint as well as improving economic conditions. We also reduced structural costs by more than $1 billion year-to-date and we now are at more than 110% of the 12 month cost synergy run rate goal for the integration of Rohm and Haas in just six months since we closed that acquisition.
We also closed two divestitures in the quarter. And we did so at very good multiples, generating nearly $1.5 billion in combined gross proceeds from the sale of TRN and OPTIMAL. And with the sale of Morton Salt closing on October 1, for $1.7 billion in gross proceeds, we completely repaid our bridge loan 90 days ahead of our goal. So as you can see, this was another quarter marked by strong execution, tight business management and a focus on delivering against our stated goals.
On slide #5 I refer to the fact that emerging geographies played an important role in our performance this quarter, particularly in Greater China, Southeast Asia, India, Latin America, and the Middle East, which all showed more robust growth. In China, government stimulus spending help spur demand for everything from appliances to automobiles.
Now here are some examples of the sequential volume growth we experienced in China, in particular. Electronic materials, up 15%; Coatings and Infrastructure, up 16%; Automotive, up 5%; and Polyethylene, up 10%. Brazil was another bright spot with volume growth of 18% versus last quarter. So as you can see, both China and Brazil have rebounded very quickly. We are seeing similar robustness in India and in other emerging geographies.
Now there are challenges that certainly remain out there, particularly in the mature economies such as those of the United States and Western Europe. In these areas the economic recovery remains somewhat muted at this point. In the United States this is due to high unemployment and reduced consumer spending that is creating a drag on economic recovery. More on this later.
On slide #6 we show that our vast end market reach in many applications industries gives us a unique view into the global economic recovery as we see virtually all sectors from many perspectives and many points of views. And by this I mean by geography, by industry, and by end market use.
We have had in place a robust tracking mechanism since the beginning of the year, the output of which you can see here. This June versus September comparison shows that demand destruction for the most part has ended and recovery has started.