This summary is based on the third quarter fiscal 2008 earnings call conducted by Dow Chemical Co. (DOW) on October 23, 2008.
Management:
VP of IR: Howard Ungerleider
EVP and CFO: Geoffery E. Merszei
Chairman and CEO: Andrew N. Liveris
Key Investors Issues
- EPS were 46 cents a share compared to 42 cents a share last year.
- Earnings reached $428 million from $403 million in the year-earlier period.
- Revenue rose to $15.41 billion from $13.59 billion a year ago.
Third Quarter Highlights
Sales increased 13% from the same period last year to $15.4 billion.
- Price increased 22% with double digit price gains in all operating segments and all geographic areas.
- Volume was down 9% globally reduced 2% by the impact of the hurricanes Gustav and Ike, further weakening of demand and focus on implementing price increases. Excluding the impact of acquisitions and divestitures and the hurricanes, volume was down 5%.
- Equity earnings were $266 million.
- In spite of the recent declines in energy prices, which occurred near the end of the quarter purchased, feedstock and energy costs surged 48% representing an increase of $2.6 billion over the same quarter last year. The company was up more than $350 million or 27 cents per share sequentially.
- Margin expansion was not achieved by either basic or performance segments as the hurricanes idled approximately 80% of North American capacity in September, just as feedstock costs were declining. All of this led to reported earnings of 46 cents per share.
- This number reflects the unfavorable impact on the hurricanes composed of 9 cents per share in costs and 3 cents per share in margin on lost sales. In addition, there were 3 cents per share impact for purchased in-process research and development charges, and 2 cents per share for expenses related to announced acquisition of Rohm and Haas.
- If adding this to the reported earnings of 46 cents, there is an adjusted earnings level of 63 cents and this does not take into account that the company had an unusually high tax rate of 29%, which would add another 3 cents per share.
Performance Plastics, the majority of the businesses in this segment posted double-digit price gains with price up 14% overall.
Volume was down 4% on further declines in the North American automotive and housing industries. Demand also softened in these same industries in Europe, particularly in residential and commercial construction in Spain and the UK.
In Dow Polyurethanes, volumes declined due to softening demand for furniture bedding and appliance applications as well as aggressive efforts to raise prices and the impact of the hurricanes, which limited supply.
Polyurethane Systems, however, reported strong demand for insulation materials used in oil and gas exploration applications. In fact, the business broke ground on an expansion at its Izolan system house in Russia to capitalize on growth in this area.
In Dow Epoxy, there was margin squeeze in intermediates because of industry oversupply, which limited ability to raise prices enough to offset higher costs In Dow Epoxy Systems, growth in wind energy and infrastructure applications, however, remain strong.
Despite robust price gains across the segment, selling prices continue to lag increases in raw material costs. With the impact of the hurricanes, EBIT in the Performance Plastics segment was down versus the same period last year.
Performance Chemicals posted year-over-year price gains up 21%.
In North America, Asia-Pacific and Latin America price improved in each of these regions by more than 20%. Designed Polymers reported strong demand in food, pharmaceutical and personal care applications in Dow Wolff Cellulosics, which partially offset weakness in construction polymers.
Dow Water Solutions reported growth for FILMTEC reverse-osmosis membranes and ion-exchange resins as global water industry fundamentals remain strong due to growing demand for clean water.
Good results were reported in Biocides driven by growth in oil and gas applications.
- In Specialty Chemicals, prices were higher in all geographical areas and strong demand was reported in industrial and household cleaning applications as well as in the agricultural industry. Margins for Dow Latex expanded, due to strong focus on price, which was aided by a limited supply of a key raw material.
- Equity earnings were strong based on results from OPTIMAL and Dow Corning. Sales and earnings accelerated at Dow Corning due to continued strong demand in the Solar industry as well as new capacity at their Hemlock semiconductor unit, which was operational for the full quarter.
- For the Performance Chemicals segment overall, EBIT increased as improvement in sales and higher equity earnings offset an increase in raw material costs.
- Following a stellar performance in the first half of the year and despite this being a seasonally slow quarter, Dow AgroSciences delivered sales and EBIT record. Price was up 18% while volume increased 8% reflecting organic growth and growth from recent acquisitions.
