Dow Chemical Company (The) (DOW)

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The Dow Chemical Company (DOW)

Q4 2009 Earnings Call Transcript

February 2, 2010 10:00 am ET


Howard Ungerleider – VP, IR

Andrew Liveris – Chairman and CEO

Bill Weideman – VP and Interim CFO

Dave Johnson – Director, IR


P.J. Juvekar – Citigroup

Hassan Ahmed – Alembic Global Advisors

John McNulty – Credit Suisse

Paul Mann – Morgan Stanley

Don Carson – UBS

Robert Koort – Goldman Sachs

David Begleiter – Deutsche Bank

Frank Mitsch – BB&T Capital Markets

Bill Young – ChemSpeak



Good day everyone and welcome to The Dow Chemical Company fourth quarter 2009 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'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 expressed written consent is strictly prohibited.

On the call with me today are Andrew Liveris, Dow's Chairman and Chief Executive Officer, Bill Weideman, Vice President and Interim Chief Financial Officer and Dave Johnson, Director of Investor Relations.

Around 6.30 this morning, February 2, our earnings release went out on PRNewswire and was posted on the Internet on Dow's website, We have prepared some slides to supplement our comments in this conference call. The slides are posted on our website on the presentation 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. And I would like to point out that in our prepared remarks today in order to provide the best information regarding our results, our sales comparisons are on a pro forma basis, excluding completed divestitures and our EBITDA comparisons exclude certain items. 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 release as well as our recent SEC filings are also available on the Internet at

The agenda for today's call is on slide three. Now I would like to hand the call over to Andrew.

Andrew Liveris

Thank you, Howard. Good morning everyone and thank you for joining us to discuss our results. What a difference a year makes. As you recall this time last year, we were facing unprecedented demand destruction and of course, steep declines in manufacturing activity across virtually all sectors.

If you look at slide four, you will see we responded by taking decisive actions throughout the year. And the results of those actions are clearly demonstrated in the fourth-quarter results. Here, Dow grew earnings year-over-year in the quarter. And we delivered the fourth consecutive quarter of positive operating earnings in highly challenging economic conditions.

But the big story of the quarter is top-line growth driven by year-over-year volume gains. We achieved 4% top-line growth and 10% higher volumes versus the same quarter last year. This is on a pro forma basis, excluding divestitures which is really the best way to view the underlying performance of our operations. This was driven by strengthening demand across many of our key segments.

Sales increased sequentially each quarter of the year and even accelerated during the fourth quarter. The power of our strong geographic footprint manifested itself once again, specifically in the emerging geographies of Asia Pacific, Latin America, Eastern Europe, India and the Middle East, which all had double-digit volume growth over the fourth quarter of last year. Overall, emerging geographies posted volume growth of 33%.

EBITDA increased by 809 million in the quarter and in all operating segments except Health and Agricultural Sciences, which declined primarily due to increased investment in R&D as we continued to fund growth in this exciting segment of our company.

EBITDA in the combined performance segments was up 88% versus the fourth quarter of last year. Overall, EBITDA was at a $6 billion annualized run rate for the third consecutive quarter.

Equity earnings were very strong at $284 million and back to normalized levels not seen since prior to the economic downturn, led by strong performance in Dow Corning and EQUATE. These joint ventures will continue to be important elements of our growth strategy going forward.

We continued our focus on cash flow generating $1.4 billion of cash from operations in the quarter and $2.1 billion for the full year. We are also well ahead of our goals on cost reductions. We ended the year with a run rate of $1.7 billion in savings from structural cost reductions and cost synergies related to Rohm and Haas. We are now 70% of the way towards our two-year goal of $2.5 billion in savings.

We completed the divestment of Morton Salt in the quarter. This was the fourth non-core divestment of 2009, all with strategic buys and all at favorable multiples. We paid off the balance of our bridge loan well ahead of plan. And we also repaid our revolver. In total, we reduced our debt by $2.5 billion since April 1, reducing our net debt to cap to 48% ahead of our goal through a number of actions I'm going to highlight later.

Now this is a very impressive list when taken on its own. But when you consider that we did all of this while continuing the integration of Rohm and Haas, cutting costs, reducing our Basics footprint, divesting non-core assets while continuing our many investments for growth, all of which was done during the worst recession in decades, these accomplishments are even more extraordinary. I am also proud that the Dow team continues its focus on serving customers well and driving top-line growth.

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