Dow Chemical Company (The) (DOW)

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The Dow Chemical (DOW)

Q3 2012 Earnings Call

October 24, 2012 9:00 am ET


Doug May - Vice President of Investor Relations

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

William H. Weideman - Chief Financial Officer, Executive Vice President and Business President of Dow AgroSciences & Corporate Development


David L. Begleiter - Deutsche Bank AG, Research Division

P.J. Juvekar - Citigroup Inc, Research Division

Hassan I. Ahmed - Alembic Global Advisors

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Vincent Andrews - Morgan Stanley, Research Division

Duffy Fischer - Barclays Capital, Research Division

Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division

Alina Khaykin

Kevin W. McCarthy - BofA Merrill Lynch, Research Division



Good day, and welcome to the Dow Chemical Company's Third Quarter 2012 Earnings Results 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, Candace. Good morning, everyone, and welcome. Thank you for joining us on such short notice and being flexible with your schedules. As you know, we issued our earnings press release yesterday evening, October 23. This was earlier than usual due to an inadvertent and premature release of our restructuring announcement. Both the restructuring release and the earnings release went out on Business Wire and were posted on the Internet on 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 express written consent is strictly prohibited. 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.

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.

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 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 to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and on our website. 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 3, and I'll 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, market dynamics in the third quarter played out in line with what we expected and outlined during the second quarter earnings call, and Dow's focus remained where we said it would. We controlled the controllable, and we accelerated cost and cash interventions to preserve our earnings targets and to stay on our strategic course. Our results were we delivered earnings per share of $0.42. Price was a large negative driver in our results, with broad-based declines driven by weak market conditions, significant downward movements in raw material costs and currency headwinds, particularly in Europe.

On the positive side, our low-cost flexible feedstock advantage enabled us to drive volume growth across every geographic region, and we had volume gains in both Agricultural Sciences, up 7%, and Performance Plastics, up 5%. EBITDA was $1.8 billion, with equity earnings down nearly $115 million versus the year-ago period. Both Performance Plastics and Performance Materials expanded EBITDA margins this quarter.

We also continued to drive cash from operations, delivering $1.1 billion during the quarter and a more-than-$650 million improvement year-to-date. Benefits from our previously announced cost and cash interventions also began to take hold, with operational expenses down more than $200 million sequentially. Lastly, our net debt to capitalization declined to 39.7%, in line with our previously announced target.

As we enter the fourth quarter and then 2013, our interventions continue to gain momentum. And yesterday, you saw us take further action, expanding our efficiency improvements and cost-reduction actions by shutting down additional non-core assets both in Europe and in the United States; tightly prioritizing new business growth investments, curtailing both CapEx and growth spending; and reducing other general expenses.

Our team is moving forward, unabated, with a renewed emphasis on execution, a revitalized focus on operational excellence and a commitment to delivering increasing cash flow, enhancing return on capital and driving earnings growth. These, and these alone, will be our focus for the next 12 months. I'll have much more to say on this in a moment. But first, let me turn it over to Bill for more detail on our financial and operating results.

William H. Weideman

Thank you, Andrew. I'd like to remind you that my comments today will be on a year-over-year basis unless otherwise noted. Sales volume and price comparisons are adjusted to exclude divestitures, and earnings comparisons are adjusted to exclude certain items.

Now turning to Slide 6. Sales decreased 10% or 7% on an adjusted basis to $13.6 billion. EBITDA was $1.8 billion and earnings were $0.42 per share. This compares with earnings of $0.69 per share in the same quarter last year or adjusted earnings of $0.62 per share.

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