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The Dow Chemical Company Q1 2010 Earnings Call Transcript

The Dow Chemical Company Q1 2010 Earnings Call Transcript

The Dow Chemical Company (DOW)

Q1 2010 Earnings Call Transcript

April 28, 2010 10:00 am ET


Howard Ungerleider – VP, IR

Andrew Liveris – Chairman and CEO

Bill Weideman – EVP and CFO

Jerome Peribere – President & CEO, Dow Advanced Materials


P. J. Juvekar – Citigroup

Don Carson – UBS

Sergey Vasnetsov – Barclays Capital

Robert Koort – Goldman Sachs

John McNulty – Credit Suisse

Paul Mann – Morgan Stanley

David Begleiter – Deutsche Bank

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Frank Mitsch – BB&T Capital Markets

Kevin McCarthy – Banc of America/Merrill Lynch

John Roberts – Buckingham Research

Jeff Zekauskas – JP Morgan

Bill Young – ChemSpeak Advisors



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Good day and welcome to The Dow Chemical Company’s first 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 Karen. 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 Chief Financial Officer; Jerome Peribere, President and Chief Executive Officer of Dow Advanced Materials; and David Johnson, Director of Investor Relations.

Around 6.30 this morning, April 28


, our earnings release went out on Business Wire and was posted on the Internet at 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’s 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 cannot 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. 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 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 first quarter results. To get you to turn to slide four, if I could sum up the quarter in just a few words, it would be this. We are a company that continues to deliver on its commitments and we believe the outperformance in the first quarter represents a pivotal point in demonstrating the earnings power of the new Dow.

The benefits of staying true to our strategic agenda are clear and we are proving it quarter after quarter. Our results once again showed the merits of our strategy in several key ways, starting with our broad-based topline growth and significant EBITDA margin expansion. Let me summarize a few high-level takeaways from the quarter. Operating earnings were $0.43 per share, up significantly from $0.11 per share in the first quarter of last year.

Sales were up a robust 33% year-over-year on a pro forma basis, and excluding divestitures driven by significant improvements in both price and volume. And on a sequential basis, our growth continued as well, with sales up 8% over the fourth quarter, pointing to a strengthening global recovery. Another very encouraging sign was our volume growth in both North America and Europe, each up an impressive 11% compared with last year.

Emerging geographies grew as well, with volume up 27% on a year-over-year basis. In fact, volume in China was up an impressive 46%. All of this pushed our global operating rate to levels not seen since the second quarter of 2008, and our manufacturing momentum improved as the quarter progressed, despite several unplanned outages. EBITDA increased $877 million versus the same quarter last year and was up more than 60% in the combined performance segments.

EBITDA margin expanded both year-over-year and sequentially at the enterprise level. And finally, our joint ventures continued to outperform with equity earnings up more than $200 million year-over-year, reaching a record $304 million driven by performance at Dow Corning, EQUATE, and MEGlobal.

Let me turn to slide 5. We stayed true to our strategic path and in fact made great progress on our key milestones. Financially, we are delivering on the earnings power of the new portfolio, especially in our performance businesses and in emerging geographies. Operationally, we delivered cost reductions of $275 million in the first quarter. We remained well ahead of plan and are currently on an annual run rate of $1.8 billion, which is ahead of our commitments. Strategically, we exceeded our growth synergy targets by delivering $530 million in revenue on a run rate basis, while at the same time, we maintained our commitment to growth, increasing our investment in research and development by 10%.

We also made substantial progress in achieving our goal to divest $2 billion of non-strategic assets in 2010 and remain on track to deliver $5.5 billion in divestments in just 12 months, more than our commitment of $5 billion and in half the time. On slide 6, as most of you know, we signed a definitive agreement to sell the Styron division for just over $1.6 billion. Additionally, this deal includes supply and service contracts that would generate substantial value for Dow in the neighborhood of $400 million. This brings the total value of the deal to more than $2 billion, the high end of our stated target for 2010.

The value reflects what we consider an excellent multiples of over eight times EBITDA. The sale of Styron will be our fifth non-core divestments since April of 2009 all at favorable multiples. On slide 7, another feature of our earnings call has been to exhibit the tracking tool that provides a look into industry and market demand trends across our geographic footprint. This look underscores the unique view we have into the emerging global economic recovery based on our participation and the value chain of a vast array of industries and end markets. And the picture is bright.

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