The Dow Chemical (DOW)

Q2 2011 Earnings Call

July 27, 2011 10:00 am ET


William Weideman - Chief Financial Officer and Executive Vice President

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

Doug May - Vice President of Investor Relations


Peter Butler - Glen Hill Investments

David Begleiter - Deutsche Bank AG

Andrew Cash - UBS Investment Bank

Jeffrey Zekauskas - JP Morgan Chase & Co

John McNulty - Crédit Suisse AG

Robert Koort - Goldman Sachs Group Inc.

Hassan Ahmed - Alembic Global Advisors

Kevin McCarthy

P.J. Juvekar - Citigroup Inc



Good day, everyone, and welcome to the Dow Chemical Company's Second Quarter 2011 Earnings Results Conference Call. [Operator Instructions] One other note, today's call is being recorded. And at this time, I would like to turn the call over to Doug May. Please go ahead, sir.

Doug May

Thank you, Kim. It's great to be back with many of you again this week. 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 Investor Relations.

Around 6:30 this morning, July 27, 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.

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'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. Sales, volume and price comparisons exclude recent divestitures, and EBITDA, EBITDA margins and earnings comparisons exclude certain items. Our earnings release, as well as recent SEC filings are available on the Internet at The agenda for today's call is on Slide 3.

I'll now hand the call over to Andrew.

Andrew Liveris

Thank you, Doug. Good morning, everyone, and thank you for joining us. On Slide 4, you'll see that this quarter once again exemplified our steadfast commitment to a strategy that delivers consistent and predictable value growth, and I believe our results speak for themselves. We showed once again that we are firmly on our earnings trajectory and undeniable growth path. We achieved robust growth in earnings per share, an impressive increase in EBITDA, up 25%, and then we expand margins for the ninth consecutive quarter. This tremendous performance was driven by strong sales growth, up 28% with demand capture and share gains across all geographic areas and virtually, all operating segments.

Notably, our focus on price and volume management in the quarter more than offset the significant rise in purchased feedstock and energy costs. And while our headline this quarter is remarkable top and bottom line growth, this was also a quarter of many firsts. Our EBITDA reached a record for the first 6 months of the year, and we are well on our way to our near-term target of $10 billion. Sales in Asia Pacific reached a new level in the quarter, and the same was true in the total of all emerging geographies.

Equity earnings of nearly $300 million contributed to our record first half, demonstrating the power of our joint venture strategy. Furthermore, our higher-margin downstream businesses delivered outstanding results. Health and Agriculture set a new sales record for the first half of the year and grew EBITDA more than 40% in the quarter. Electronic and Specialty Materials and Performance Systems both achieved quarterly EBITDA records. Our Water business set records in sales and in EBITDA, and our Plastics segment delivered its eighth consecutive quarter of EBITDA margin of more than 20%. As most of you know, this segment has undergone significant transformation over the last several years, shifting a commodity focus to that of a performance technology differentiated portfolio. This transformation takes a significant step forward again today.

As we are announcing on this call that we've signed a definitive agreement to sell Dow's global polypropylene business for $340 million at an attractive multiple of 6.7x EBITDA. This sale to a strategic buyer has allowed us to achieve what we consider to be an excellent value for the sale of this business. Proceeds will be directed to our main priorities: debt reduction, remunerating shareholders and funding growth. Details about the buyer will be shared shortly. This divestment is yet another strong example of our disciplined and ongoing approach to portfolio management and allows us to further accelerate the transformation of our performance plastics franchise and has renewed and reshaped focus on downstream market-driven solutions. By doing this, we are dampening volatility and putting our propylene into higher-value end users. And the bottom line is that our formula for success is straightforward, the right strategy and a diligent focus on putting it into action.

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