This summary is based on the fourth quarter fiscal 2007 earnings call conducted by The Dow Chemical Co. (DOW) on January 29, 2008.
Management:
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President, CEO and Chairman: Andrew N. Liveris
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EVP and CFO: Geoffery E. Merszei
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Corporate Director of IR: Kathleen C. Fothergill
Key Investors Issues
- Net income was $472 million or 49 cents a share, down 51.6%.
- Equity earnings were $294 million, up 21% year over year.
- Sales rose 16% to $14.2 billion from $12.2 billion in the prior year due to higher prices and volume growth.
Full Year Highlights:
- Sales were $53.5 billion, up 9% over 2006 as price was up 7% with gains in all segment and geographies.
- Volume was up 2% with gains in all segments except Basic Chemicals, and in all geographic areas except North America and IMEA.
- The firm achieved record equity earnings of $1.1 billion, up 17% from 2006 and topping $1 billion for the first time.
Fourth Quarter Highlights
Net income was $472 million or 49 cents a share, down 51.6% from $975 million or $1 a share in the prior year.
- Results were impacted by net of after-tax charges of $334 million related to restructuring activities and purchased in-process research and development related to recent acquisitions.
- They were also partially offset by a reduction in the provision for income taxes related to a change in the legal ownership structure of EQUATE.
- Volume was up 4%, with all operating segments showing increases as stronger demand in Europe, Asia Pacific, Latin America and India, Middle East and Africa (“IMEA”) more than offset continued softness in North America.
Price was 12% higher, with increases in all operating segments, largely offsetting significant increases in purchased feedstock and energy costs, which were 31% higher than the same period last year.
- Selling, Administrative and Research and Development (“SARD”) expenses increased 11% year over year, including the addition of SARD expenses in recently acquired Performance businesses.
- The increase also reflects a disciplined investment strategy to build markets, expand product offerings, and establish brands in several of Dow’s high value, market-facing businesses.
- Equity earnings were $294 million, up 21% year over year including record quarterly contributions from EQUATE, MEGlobal and Compañía Mega.
- Sales rose 16% to $14.2 billion from $12.2 billion in the prior year due to higher prices and volume growth.
Segment Highlights:
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Performance Plastics posted record quarterly sales on higher price and higher volume, but EBIT excluding unusuals declined, principally because of escalating raw material costs and some weakness in the housing and auto sectors.
- Price and volume both increased 6%, with gains in every geographic area outside North America.
- Polyurethanes posted volume gains reflecting recent acquisitions in Europe and strong sales in Asia Pacific.
- Dow Epoxy reported strong demand globally for industrial coatings, but saw lower demand in North America for architectural coatings used in housing, and building and construction applications.
Dow Automotive showed price and volume gains globally, driven by growth in foam applications as manufacturers responded to consumer demand for thicker and firmer seats.
- The Specialty Plastics and Elastomers business posted increases in price and volume, led by growth in Asia Pacific for polymers.
- Earnings before tax was $158 million, including charges of $184 million for restructuring, down from $347 million in 2006, which included a charge of $85 million related to a loss contingency for a fine imposed by the European Commission.
- In addition, continued weakness in industry fundamentals for acrylics and acrylic latex as well as lack of product availability due to a planned outage at optimal hurt the bottom line.
- On the plus side, the integration of Wolff Walsrode into Dow Wolff Cellulosics is proceeding very well and the business is seeing good growth in pharmaceuticals, food, and industrial specialty applications.
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AgroSciences posted sales of $864 million, 6% higher than the same period in 2006, reflecting both organic growth and growth from acquisitions.
- Volume was up 2% and price up 4%, with price gains in all geographic areas and volume increases in Latin America, Asia Pacific and Europe.
- Seed sales increased substantially from the same period last year due to strong farm commodity prices, increasing demand for biofuels, higher 2007 farm incomes and grower confidence.
Herbicide sales in Latin America grew significantly compared with the same period last year, while new products penoxsulam and aminopyralid continued to ramp-up.
- Integration of new acquisitions Agromen, MTI and Duo Maize are progressing well.
-The business continued to make strategic investments to accelerate new product development and commercialization.
- EBIT was a loss of $38 million, which included restructuring charges of $77 million.
- The firm saw some shifting seasonal patterns with some customers in North America selling tanks earlier than in past years moving business from the fourth quarter into the third.
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Basic Plastics sales rose 18% to $3.49 billion from $2.94 billion in the same period last year.
- Price increased 17% and volume increased 1% as price was up in all geographic areas and across all polymer families despite asset shutdowns and disposals over the past year.
- Polyethylene and Polypropylene posted double-digit price gains in Europe, IMEA, Latin America and North America after adjusting for the divestiture of Safripol at the end of last year.
- Volume in the segment was up in Asia Pacific, Europe and Latin America, more than offsetting a decline in North America.
Volume gains were achieved despite the sale of Polyethylene and Polypropylene assets in South Africa and the shut down of Polystyrene and Polyethylene capacity in Sarnia, Canada, in 2006.
