Dow Chemical Company (The) (DOW)

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The Dow Chemical Company (DOW)

Q4 2012 Earnings Call

January 31, 2013 9:00 am ET

Executives

Doug May- Vice President of Investor Relations

Andrew Liveris - Chairman and Chief Executive Officer

William Weideman - Executive Vice President and Chief Financial Officer

Analysts

John McNulty - Credit Suisse

Robert Koort - Goldman Sachs

Hassan Ahmed - Alembic Global Advisors

Kevin McCarthy - Bank of America Merrill Lynch

Don Carson - Susquehanna International Group

Peter Butler - Glen Hill Investments

David Begleiter - Deutsche Bank

Jeffrey Zekauskas - JPMorgan

P.J. Juvekar - Citi

Presentation

Operator

Good day, everyone, and welcome to the Dow Chemical Company's Fourth Quarter 2012 Earnings Conference Call. (Operator Instructions). Also, today's call is being recorded.

I would now like to turn the call over to Doug May, Vice President of Investor Relations. Please go ahead, sir.

Doug May

Yes, thank you, 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, Bill Weideman, Executive Vice President and Chief Financial Officer and Dale Winger, Associate Director in Investor Relations.

Around 7 am this morning, January 31st, our earnings release went out on Business Wire, and was posted on the internet on dow.com. We have prepared slides to supplement our comments in this conference call. These slides are posted on our website and through the link to our webcast.

Now some of our comments today include statements about expectations for the future. Those expectations involve risks and uncertainties. We cannot guarantee the accuracy of any forecast or estimates and we don't plan to provide or 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.

Now, additionally some of our comments will reference non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and on our website.

Now unless otherwise specified, all comparisons presented today will be on a year-over-year basis EBITDA, EBITDA margins and earnings comparisons exclude certain items. The agenda for today's call is on slide three.

I will now hand the call over to Andrew.

Andrew Liveris

Thank you, Doug. Good morning, everyone. Thank you for joining us. If you look at slide four, 2012 was a challenging year. However, Dow controlled the controllable, implementing strong and robust cost reduction in margin improvement programs as well as reprioritization of growth projects and executed these tactical interventions with a focus of a world seasoned team.

Let me, some of the highlights from the fourth quarter and the full year starting with the quarter. Here are the headlines, earnings per share excluding certain items was $0.33, volumes stabilized as demand growth in Asia-Pacific and the Americas offset ongoing demand weakness in Western Europe.

Our stringent price, volume, margin focus enabled us to deliver higher margins over raw material costs with only a slight decline in price year-over-year and an increase sequentially led by our strong Performance Plastics franchise, therefore our results were adjusted EBITDA of $1.6 billion reflecting strong results in our Performance Plastics franchise with a 430-basis point increase in margins due to robust U.S. feedstock and energy fundamentals. I will have more to say on that in a moment.

Dow Agricultural Sciences achieved record sales levels and EBITDA in the fourth quarter. We saw significant decline in equity earnings this quarter, particularly from Dow Corning and ongoing headwinds in certain businesses particularly thermosets, where we are addressing structural disadvantages were also seen in the quarter, however and importantly, we continue to drive strong cash flow from operations delivering $1.6 billion during the quarter and more than $4 billion for the year as we had promised.

Turning to slide five, this brings us to our achievements for 2012. Dow delivered adjusted earnings per share of $1.90. There were two key drivers. On the downside, price which declined a staggering $2.1 billion for the year with most of the impact taking place from mid-year onwards.

Note that currency accounted for nearly two-thirds of this decline. In addition, as you know, the entire industry experienced significant naphtha-based margin contraction in both, Europe and Asia and our equity earnings were down significantly for the year, largely exacerbated by industry challenges specific to Dow Corning.

On the upside, our strengthening feedstock advantage in the Americas, which includes Canada, Argentina and the United States, along with healthy market fundamentals in Agricultural Sciences, partially offset these headwinds. In fact, Dow Agricultural Sciences achieved record sales and EBITDA in the year of $6.4 billion and nearly $1 billion, respectively.

In addition, we reached significant milestones with critical, enterprise growth projects such as our investments on the U.S. Gulf Coast, and our Sadara joint venture in the Middle East. These projects are game changers to Dow's bottom line. More after Bill reviews the quarter. And, as stated, we clearly sustained a laser-like focus on financial fitness reducing our debt by more than $600 million, maintaining our liquidity position and achieving strong cash flow from operations.

Between 2011 and 2012, we generated $8 billion in cash flow from operations, in line with our previously stated targets. This focus on financial flexibility enabled us to deliver on our commitment to increasingly reward shareholders with a 34% increase in dividends declared. As we enter 2013, I am confident we have the right catalysts in place to deliver on our earnings growth targets.

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