- The recent acquisitions in Polyurethane Systems contributed to double digit volume growth. The acquisition enhanced the company’s presence in fast growing applications such as insulation for pipelines and oil and gas tankers.
- Specialty Plastics and Elastomers (SP&E) reported strong demand for ENGAGE elastomers in automotive applications, and AFFINITY polyolefin plastomers in hot melt adhesives and eco-friendly carpet backings.
- Dow Epoxy recorded lower volumes, reflecting the exit of the peroxymeric chemicals business in 2007 as well as the decision by the business to reduce sales of epoxy intermediates in the face of declining industry margins due to additional industry capacity.
- Q1 EBIT for the unit was $329 million versus $441 million in the first quarter of 2007.
Performance Chemicals
- Q1 sales increased to $2.3 billion, representing an increase of 16% from $2 billion in the same period last year.
- Globally, price rose 9% while volume increased 7%.
- Strong volumes gains were recorded in Europe, Asia Pacific, Latin America and IMEA.
- Good demand growth was recorded in pharmaceutical and food applications, solutions, biocides and polymers.
- The management reported that the equity earnings in the segment were $95 million, a decrease of $10 million on the back of lower contributions from Dow Corning due to short term spike in raw material costs.
- The segment posted EBIT of $271 million for the quarter versus $312 million in the same period last year.
Agricultural Sciences
- The segment posted record sales of $1.3 billion, 27% higher than the same period in 2007. This was helped by the continued implementation of the growth strategy at Dow AgroSciences.
- The results also reflected organic growth and growth from recent acquisitions.
- The price level was 11% firmer than last year quarter and volume firmed 16% with double digit increases in Europe, Asia Pacific and Latin America.
- The Seeds business recorded sales increases in corn seeds in Brazil while higher agricultural chemical sales reflected Dow AgroSciences’ very strong portfolio of cereal herbicides.
- The recent acquisitions of Agromen, MTI and Duo Maize continue to perform well and the integration of newly acquired Triumph Seeds is in progress.
- Q1 EBIT was $331 million versus $282 million in Q1 of 2007.
Basic Plastics
- Sales for the quarter rose 21% to $3.5 billion.
- Price increased 24% while volume dipped 3% partly due to shutdowns of polypropylene capacity in St. Charles, Louisiana in Q4 of 2007 and the sale of polyethylene assets in Cubatao, Brazil in Q2 of 2007.
- Polystyrene margins were under pressure during the quarter, as costs for raw materials increased.
- Q1 equity earnings for the segment were $42 million, a decrease of $12 million. The higher earnings at EQUATE were more than offset by decreases at Equipolymers and Siam Polyethylene.
- The EBIT for the segment was $427 million versus $527 million in the same period last year.
Basic Chemicals
- The sales increased 23% year-over-year to $1.6 billion versus $1.3 billion in 2007.
- The segment recorded a 26% rise in price and a 3% decrease in volume.
- The equity earnings increased by $22 million year-over-year to $97 million, helped by strong results at MEGlobal, EQUATE and OPTIMAL.
- The quarterly EBIT firmed $25 million to $159 million compared with $134 million in the first quarter of 2007.
Second Quarter Guidance
- The management reported that with more than two-thirds of company sales and over 70% of the JV sales outside of the U.S., the company’s geographic balance provide a hedge against a further U.S. slowdown.
- The management expects a good Q2 on the back of ongoing strength in the JVs, growth in the Performance businesses and strong focus on financial discipline and price/volume management.
Key questions and answers from the first quarter fiscal 2008 earnings call conducted by The Dow Chemical Company on April 24, 2008.
Gregg Goodnight (UBS): Can you provide an update on your anticipated start for major projects like the HPPO and EQUATE II projects? Do you expect either of these projects to deliver meaningful earnings this year or we will see more of the impact next year?
Andrew Liveris: The HPPO project with BASF in Antwerp has had some delays and we expected it to start towards the back half this year. The EQUATE expansion will come up in phases; the third quarter will see the ethylene and EOEG plant come up and the poly ethylene will come up in the early part of next year. There will be some impact from that and the PO project later in the year.
Gregg Goodnight (UBS): Do you think that when the HIPPO unit gets running, you are going to deliver margins in excess of what are currently being seen by alternate technologies like POSM?
Andrew Liveris: In the announcement that both Dow and BASF made when we announced the building of that plant, we referenced to lower capital intensity, more energy efficiency and lower waste as three major improvements compared to POSM. We stick by those three statements and that was in an energy world of three years ago. In an energy world of today, that''s even better, obviously you have a new asset and you''ve got to go through a high capitalization base but we believe it''s competitively advantaged versus POSM. As a consequence of that, this will add new margin to us over the short to medium-term.
David Begleiter (Deutsche Bank): As we approach the conclusion of the PIC joint venture, is your thought process still that there are no large acquisitions visible and you would deploy that cash to share buybacks more aggressively?
Andrew Liveris: Our discipline is intact on the M&A front. We''ve had several years of strict discipline. As the Kuwait deal looms to close, the share buyback option becomes more and more probable. We''ve always said we''re going to preserve our optionality in case one of the targets we''ve been interested in becomes more realizable. As the year goes by, what you''ll see from us is patience, prudence and discipline and as the Kuwait deal gets closer to close, the chances of share buyback increase quite dramatically.
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