Dow Chemical Company (The) (DOW)

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The Dow Chemical (DOW)

Q4 2011 Earnings Call

February 02, 2012 9:00 am ET


Doug May - Vice President of Investor Relations

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

William H. Weideman - Chief Financial Officer and Executive Vice President


John P. McNulty - Crédit Suisse AG, Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Hassan I. Ahmed - Alembic Global Advisors

Peter Butler

Andrew W. Cash - UBS Investment Bank, Research Division

Robert Koort - Goldman Sachs Group Inc., Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

P.J. Juvekar - Citigroup Inc, Research Division



Good day, and welcome to the Dow Chemical Company's Fourth Quarter 2011 Earnings Results Conference Call. [Operator Instructions] Also, today's call is being recorded. I would now like to turn the call over to Mr. Doug May, Vice President of Investor Relations. Please go ahead, sir.

Doug May

Thank you, Alicia. 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, Executive Vice President and Chief Financial Officer; and Dave Johnson, Director in Investor Relations.

Around 7:00 a.m. this morning, February 2, our earnings release went out on Business Wire and was posted on the Internet on We have prepared slides to supplement our comments in this conference call. These slides are posted on our website on the Presentations page of the Investor Relations section and through the link to our webcast.

Some of our comments today include statements about 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'd like more information on the risks involved in forward-looking statements, please see our SEC filings, which are available on the Internet at In addition, some of our comments reference non-GAAP financial measures. Presentation of and reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and the prepared slides and on our website. Unless otherwise, specified, all comparisons presented today will be on a year-over-year basis. Sales, price, volume comparisons exclude the impact of divestitures and EBITDA, EBITDA margins and earnings comparisons exclude certain items. The agenda for today's call is on Slide 3. I will now hand the call over to Andrew.

Andrew N. Liveris

Thank you, Doug. Good morning, everyone, and thank you for joining us. If you turn to Slide 4, 2011 proved to be yet another successful and strategically important year for Dow. We reached new milestones and drove a focused agenda with clear priorities. As you know, the fourth quarter presented our industry with a challenging operating environment with new uncertainty driven mostly because of the sovereign debt issues in Western Europe, coupled with traditional seasonality, led to substantial destocking across supply chains, as customers reduced inventories prior to year end. We anticipate this volatility and we're prepared. Our company acted swiftly and purposefully, as we said we would. At our Investor Day last fall and during our third quarter earnings announcement, we discussed the levers we could pull and the interventions we would take if necessary. And that's exactly what we did. We cut discretionary spending. We took action to improve operating rates. We tightly managed working capital, and these actions generated cash from operations of $2 billion in the quarter. Over the last several months, we have been very focused on our interventions, which delivered results as follows: earnings per share excluding certain items were $0.25. Note that we had several certain items that impacted our reported EPS and resulted in an effective tax rate of more than 76% in the quarter. The largest of these was a noncash tax charge that reduced earnings by $0.23 per share. Bill will provide more details on this momentarily.

Sales increased in all geographic areas. Importantly, we achieved a new quarterly sales record in the emerging geographies. In fact, this quarter our sales in emerging geographies reached 35% of total global sales, hitting our stated medium-term target. The benefits of our broad and growing global footprint were evident in our volume results, as growth in emerging geographies fully offset weakness in developed regions, particularly Western Europe. Price rose in all geographic areas and all operating segments, offsetting a $476 million increase in feedstock and energy costs. And Agricultural Sciences delivered strong results, achieving record fourth quarter sales and EBITDA.

Turn to Slide 5. Given these weak market conditions, our operating rate declined to 72% during the quarter, which drove quick interventions to mitigate downside risk mostly to tightly manage volume and inventory. And as you look at Slide 6, as a result, our operating rate reached an inflection point in November and recovered 7 percentage points in December. Importantly, this enabled us to exit the quarter with momentum. In fact, December volume was 10 percentage points higher than December 2010.

Turn to Slide 7. As a result of our interventions, we generated solid cash from operations in the quarter and ended the year with a stronger net debt to capital position. As you can see, we did exactly what we said we would do. We intervened to mitigate risks without sacrificing our strategic objectives. This focus served us well throughout 2011 and will continue into 2012, which brings me to our results for the full year on Slide 8.

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