Dow Chemical Company (The) (DOW)

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The Dow Chemical (DOW)

Q4 2010 Earnings Call

February 03, 2011 10:00 am ET

Executives

William Weideman - Chief Financial Officer and Executive Vice President

Howard Ungerleider - VP of IR

Andrew Liveris - Executive Chairman, Chief Executive Officer, President, Chairman of Executive Committee, Member of Environment, Health & Safety Committee and Member of Business Operations Committee

Analysts

David Begleiter - Deutsche Bank AG

Jeffrey Zekauskas - JP Morgan Chase & Co

Donald Carson - Susquehanna Financial Group, LLLP

Andrew Cash - UBS Investment Bank

Robert Koort - Goldman Sachs Group Inc.

John McNulty - Crédit Suisse AG

Frank Mitsch - BB&T Capital Markets

Kevin McCarthy

Hassan Ahmed - HSBC

Paul Mann - Morgan Stanley

P.J. Juvekar - Citigroup Inc

Presentation

Operator

Good day, everyone, and welcome to the Dow Chemical Company's Fourth Quarter 2010 Earnings Results Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Howard Ungerleider, Vice President of Investor Relations. Please go ahead, sir.

Howard Ungerleider

Thanks, Lisa. Good morning, and 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 today with me are Andrew Liveris, Dow's Chairman and Chief Executive Officer; Bill Weideman, Executive Vice President and Chief Financial Officer; and David Johnson, Director of Investor Relations.

Around 6:30 this morning, February 3, our earnings release went out on Business Wire and was posted on the Internet on dow.com. 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 both risks and uncertainties, and we cannot 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 today 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.

Unless otherwise specified, all comparisons presented today will be on a year-over-year basis. Sales comparisons will exclude prior-period divestitures, and earnings comparisons will exclude certain items in 2009 discontinued operations. 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.

I'd now like to turn the call over to Andrew.

Andrew Liveris

Thank you, Howard. Good morning, everyone, and thank you very much for joining us. Our results in the fourth quarter were really the capstone for a very successful year for Dow, with significant top and bottom line growth.

On Slide 4, you'll see the results. Operating earnings were up nearly 3x. EBITDA grew 30%. We delivered a seventh consecutive quarter of year-on-year EBITDA margin expansion. We achieved double-digit sales increases across the globe, with growth in every segment and geography, including record sales in emerging markets. Our operating segments demonstrated their earnings strength, most notably, Health and Agricultural Sciences delivered record fourth quarter sales. Our Electronic and Specialty Materials segment posted its sixth consecutive quarter of greater than 30% EBITDA margin. Our transform plastics portfolio grew margin more than 500 basis points versus the same period last year. And our overall pricing discipline more than offset a nearly $700 million increase in purchase feedstocks and energy costs. Our growth synergies run rate surpassed $1.1 billion. We lowered our net debt significantly. And finally, we generated $1.8 billion in cash from operations.

Those are the headlines for the quarter. The reflected company with a powerful and diverse portfolio and expanding geographic presence and increasing investment in growth. Together, they reveal a company that is transformed and with a rising earnings profile. So what's driving this success, this forward momentum? The recovery in the global economy certainly helps. But as we all know, that alone is not sufficient. More fundamentally, our results are a reflection of our decision to change the direction of this company to reposition ourselves to address the megatrends that are redefining our world. The strategic actions we've taken over recent years to strengthen our company ultimately delivering higher and more sustainable earnings. This includes significant efforts to reduce our cost structure and shift our portfolio, notably through the acquisition of Rohm and Haas and with the growing investment in research and development. And perhaps most importantly, our human element, our Dow people who deliver this transformation everyday.

On Slide 5, you can see our 2010 achievements. 2010 was another successful step forward on our earnings growth trajectory. Over the past year, we achieved and in many cases exceeded our goals. Some of our highlights include sales, which grew sequentially each quarter throughout the year; volume growth of 12%, which was led by our combined Performance segments; sales in fast-growing emerging regions reached $16 billion in 2010, a record for our company; and sales in Asia-Pacific were also a record, topping $9 billion.

EBITDA exceeded $7.5 billion for the year, up 36% from 2009. We delivered cash from operating activities of over $4 billion, nearly double that of 2009. We exceeded our goal for divesting non-strategic assets, and we completed our goal of delivering more than $2 billion in synergy and restructuring savings related to the Rohm and Haas acquisition, a full quarter ahead of schedule. All of this enabled us to exit the year with tremendous financial flexibility. In a few moments, I'll discuss our strategy in action, our outlook and priorities for 2011. But first, let me turn the call over to Bill, who will provide more detail on the quarter.

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