Dow Chemical Company (The) (DOW)

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The Dow Chemical Company (DOW)

Q3 2010 Earnings Call Transcript

October 28, 2010 10:00 am ET


Howard Ungerleider – VP, IR

Andrew Liveris – Chairman and CEO

Bill Weideman – EVP and CFO


P.J. Juvekar – Citi

David Begleiter – Deutsche Bank

Don Carson – Susquehanna International

Paul Mann – Morgan Stanley

Andy Cash – UBS

Bob Koort – Goldman Sachs

Jeff Zekauskas – J.P. Morgan

Frank Mitsch – BB&T Capital Markets

Kevin McCarthy – Bank of America/Merrill Lynch

Mark Connelly – CLSA

Bill Young – ChemSpeak

John Roberts – Buckingham Research



Good day, everyone and welcome to The Dow Chemical Company's third quarter 2010 earnings results conference call. Today's call is being recorded. 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, 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 David Johnson, Director in Investor Relations. Around 6:30 this morning, October 28, our earnings release went out on Business Wire 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 and 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 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. 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 and 2009 discontinued operations.

Our earnings release as well as recent SEC filings are available on the Internet at The agenda for today's call is on slide three. And with that, I'll now hand the call over to Andrew.

Andrew Liveris

Thank you, Howard. Good morning, everyone. Thank you for joining us to discuss our third quarter performance. Our results announced this morning were outstanding by every measure. Our earnings were more than double those of a year ago. EBITDA reached a level not seen since before the economic crisis. Margins were up significantly. Volume increased double digits and was up across every single one of our segments and in every geography.

Our operating rate surged as we fully met the growth in demand. Equity earnings hit the $1 billion mark on a trailing 12-month basis. Our growth synergies accelerated, reaching nearly $1 billion. We are outperforming on the cost synergy front, having delivered a run rate of greater than $2.1 billion exiting the quarter and finally, we generated almost $1 billion in cash from operations.

But this is only the beginning of the Dow story. We are on the right trajectory to deliver even higher levels of earnings growth. And we’re going to have a lot more to say on how we'll achieve these goals at our Investor Day here in Midland next week.

So, on slide four, let's walk through some of the key takeaways from the quarter. Earnings per share were $0.54, up impressively from $0.24 last year. This was driven by broad-based sales gains of 23% with double-digit increases in every operating segment and in every geography.

Volume was up a notable 14%. EBITDA increased more than $350 million to $1.9 billion, reaching an annualized run rate of $8 billion compared to $5.5 billion last year. Basic Plastics was once again delivering strong results with EBITDA of nearly $730 million, up 24%. And Performance Products and Performance Systems together delivered an EBITDA increase of $150 million or 30%. Margins improved nearly 200 basis points overall for the company, to pre-recession levels, even though volumes have not yet recovered for most of our businesses.

On a segment basis, Electronic and Specialty Materials has now achieved five straight quarters of 30% plus margins. Performance Products delivered a 400 basis-point expansion. In fact, our combined Performance operating segments have now delivered margin gains for five out of the last six quarters. And sequentially, margin growth was notable in Performance Products with a nearly 500 basis-point improvement and in Performance Systems with a more than 250 basis-point gain.

So, now let's turn to our milestones on slide five. First, our tremendous earnings growth this quarter demonstrated the power of our portfolio. As I said, we delivered $1 billion in cash flow from operations. Also, we’re outperforming on both the cost and growth synergy front. And we achieved another stair-step reduction in our net debt to cap ratio achieving 44%, exceeding our goal for the year.

From an operational perspective, the increase in demand drove our operating rate to 86%, a level not seen since the first quarter of 2008 and once again showing why Dow is highly regarded for our signature operational capabilities. Last quarter, as you know, I said that we were firing on seven of eight cylinders due to the significant number of planned and unplanned outages that impacted our results. We said we were taking the time to make corrective actions and that those issues would be behind us.

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