Company Delivers Quarterly Sales Record, Volume Gain of Five Percent and Record Performance from Dow AgroSciences
MIDLAND, Mich., July 24 /PRNewswire-FirstCall/ --
Second Quarter 2008 Highlights
- Sales for the second quarter set another Company record, rising 23
percent from the same period last year to $16.4 billion. Double-digit price
increases were recorded in all operating segments and all geographic areas.
- Volume grew 5 percent, with 12 percent growth in geographic areas
outside of North America, including an 11 percent volume increase in Europe.
- Earnings for the quarter were $0.81 per share, compared with earnings
per share of $1.07 in the same quarter last year.
- Purchased feedstock and energy costs surged 42 percent, or $2.4 billion,
compared with the same quarter last year, the largest year-over-year increase
in the Company's history.
- EBIT(1) in the combined Performance segments rose compared with the same
period last year despite substantial increases in raw material and supply
chain costs.
- Agricultural Sciences set a new quarterly record for both sales and
EBIT. Sales rose 25 percent, and EBIT grew more than 60 percent versus the
same period last year.
- Equity earnings were $251 million for the quarter, once again
demonstrating consistent contributions from joint ventures to the Company's
results.
Comment
Andrew N. Liveris, Dow's chairman and chief executive officer, stated:
'The surge in oil prices from first to second quarter added another $1
billion of cost sequentially, and we reacted quickly by announcing two broad-
based price increase initiatives, adjusting plant operating rates and
implementing additional cost-cutting measures. The fast implementation of
these price increases limited margin compression over our hydrocarbon and
energy costs to approximately $130 million in the quarter. This is a
remarkable performance when you consider that this is only 1 to 2 percent of
our total quarterly hydrocarbon and energy costs.
'These short-term actions, in addition to key elements of Dow's strategy,
such as our large global footprint, our investments in Performance businesses
and our asset light ventures, enabled us to weather unparalleled increases in
hydrocarbons, supply chain and other costs.'
3 Months 6 Months
Ended Ended
June 30 June 30
(In millions, except for 2008 2007 2008 2007
per share amounts)
Net Sales $16,380 $13,265 $31,204 $25,697
Net Income $762 $1,039 $1,703 $2,012
Earnings per Common Share $0.81 $1.07 $1.80 $2.07
Review of Second Quarter Results
The Dow Chemical Company (NYSE: DOW) reported sales of $16.4 billion for
the second quarter of 2008, 23 percent higher than the same period last year,
setting another quarterly sales record.
Net income for the quarter was $762 million. This compares with net income
of $1,039 million in the second quarter of 2007. Dow reported earnings for the
current quarter of $0.81 per share versus earnings of $1.07 per share in the
second quarter of 2007.
Price was 18 percent higher than the same quarter last year, with
double-digit increases in all operating segments and all geographic areas.
These price gains offset significant increases in purchased feedstock and
energy costs, which were $2.4 billion higher than the same period last year.
However, these price increases were not enough to cover higher total raw
material and supply chain costs.
Year over year, volume was up 5 percent, matching the highest quarterly
increase since 2004. In the combined Performance segments, volume increased 7
percent. Growth in emerging geographies of 12 percent, and 11 percent growth
in Europe, more than offset economic weakness in North America. Volume in
North America was also impacted by various asset shutdowns, business exits and
the formation of Americas Styrenics, a new joint venture between Dow and
Chevron Phillips Chemical Company.
Equity earnings were $251 million for the quarter, once again
demonstrating strong and consistent contributions from joint ventures to the
Company's results.
'The surge in oil prices from first to second quarter added another $1
billion of cost sequentially, and we reacted quickly by announcing two
broad-based price increase initiatives, adjusting plant operating rates and
implementing additional cost-cutting measures,' said Andrew N. Liveris,
chairman and chief executive officer. 'The fast implementation of these price
increases limited margin compression to approximately $130 million in the
quarter. This is a remarkable performance when you consider that this is only
1 to 2 percent of our total quarterly hydrocarbon and energy costs.
'These short-term actions, in addition to key elements of Dow's strategy,
such as our large global footprint, our investments in Performance businesses
and our asset light ventures, enabled us to weather unparalleled increases in
hydrocarbons, supply chain and other costs.'
Performance Plastics
In the Performance Plastics segment, second quarter sales of $4.4 billion
represented an 18 percent increase over the same period last year. Price
increased 11 percent, with gains in all geographic areas. Volume rose 7
percent, with particular strength in Europe and Asia Pacific. Despite robust
price gains across the segment, selling prices continued to lag significant
increases in raw material and supply chain costs. Recent acquisitions
contributed to double-digit volume growth in Polyurethane Systems, as demand
increased in applications such as insulation for oil and gas pipelines and
refrigerated transport. Dow Wire and Cable reported strong demand in medium
voltage cabling, as the pace of electrical infrastructure replacement in major
cities increased and demand from emerging geographies grew due to construction
of new electrical grids. Dow Epoxy Systems sales continued to ramp up,
however, margins declined for epoxy intermediates in the face of rising raw
material costs and additional industry capacity. The North American automotive
and housing industries continued to decline, and negatively impacted results
in a number of business units such as Dow Automotive, Dow Building Solutions,
and Specialty Plastics and Elastomers. Second quarter EBIT for Performance
Plastics was $268 million, compared with $382 million in the second quarter of
2007.
Performance Chemicals
Sales in Performance Chemicals were $2.5 billion for the quarter, a gain
of 20 percent compared with $2.1 billion posted in the same period last year.
Globally, price was up 14 percent while volume increased 6 percent. Price
increased in all geographic areas, and strong volume gains were reported in
Europe, Latin America and the India, Middle East, and Africa region. Designed
Polymers posted price and volume gains in all geographic areas, due in part to
growth in pharmaceutical and oil and gas applications in Dow Wolff Cellulosics
and strong demand for poultry food additives in its Specialty Polymers unit.
Dow Water Solutions reported growing demand for FILMTEC(TM) reverse osmosis
membranes, as more world scale desalination projects utilizing Dow technology
were announced. The significant contraction in the U.S. housing industry
dampened results for Dow Latex in paint applications. Equity earnings in the
segment were $119 million, up $15 million on better results from Dow Corning
and OPTIMAL. Performance Chemicals reported EBIT of $290 million for the
quarter, compared with $294 million for the same period last year.
Agricultural Sciences
The Agricultural Sciences segment posted record sales of $1.4 billion, 25
percent higher than the same period last year. All geographic areas posted
double-digit increases in sales, reflecting organic growth and growth from
recent acquisitions. Dow AgroSciences' broad portfolio of both agricultural
chemicals and seeds benefited from rising prices and low global inventories of
farm commodities. Price was up 12 percent, with strong increases in all
geographic areas. Volume was up 13 percent compared with the same period last
year, with double-digit increases in North America, Europe, Latin America and
Asia Pacific. Ag chemicals showed particular strength. Sales were up sharply
for new cereal and rice herbicides, and for spinetoram insecticide, which
continued its successful launch in the United States. Seeds and traits
continued to benefit from a strong ag economy with global demand for
agricultural output at record levels. The recent acquisitions of Agromen, MTI
and Duo Maize continue to perform well, and the integration of newly acquired
Triumph Seeds is progressing. Second quarter EBIT for Agricultural Sciences
was $335 million, compared with $208 million in the year ago period.
Basic Plastics
In the Basic Plastics segment, sales rose 19 percent to $3.8 billion, up
from $3.2 billion in the same period last year. Price increased 22 percent,
and was up in all businesses and in all geographic areas. Volume decreased 3
percent, due in part to the shutdown of polypropylene capacity in St. Charles,
Louisiana in the fourth quarter of 2007, the sale of polyethylene assets in
Cubatao, Brazil in the second quarter of 2007, and the formation of Americas
Styrenics, a new polystyrene joint venture between Dow and Chevron Phillips
Chemical Company. Polyethylene showed particular strength, with volume gains
in all geographic areas. Margin compression occurred, however, as costs rose
faster than selling prices. Demand for polypropylene was down globally, due to
lower consumer spending and slowdowns in the housing and automotive sectors in
North America. Equity earnings were $33 million, down $15 million as higher
earnings at EQUATE were more than offset by decreases at Equipolymers and Siam
Polyethylene. EBIT for Basic Plastics was $388 million compared with $529
million in the same period last year.
Basic Chemicals
Basic Chemicals sales for the quarter increased 13 percent year over year
to $1.6 billion, compared with $1.5 billion in the same period last year. The
segment recorded a 20 percent gain in price, and a 7 percent decline in
volume. Volumes were negatively impacted by the sale of the caustic soda
business in Western Canada in December 2007. Caustic soda benefited from
ongoing favorable industry supply/demand fundamentals, but demand for vinyl
chloride monomer used in polyvinylchloride ('PVC') production continued to
decline as end-use applications for PVC, namely residential building and
construction applications, remained soft. Results for the Chlor-Vinyls
business were also impacted by an unplanned outage at the Company's Freeport,
Texas facility. Volumes were off substantially in the Ethylene Oxide/Ethylene
Glycol ('EO/EG') business, due to weak industry fundamentals caused by the
restart of a competitor's production capacity, new capacity from Middle
Eastern suppliers, and a decline in polyester fiber demand in Asia Pacific.
Results for EO/EG were also impacted by an extended plant turnaround in
Plaquemine, Louisiana, and by reduced operations at other facilities to bring
inventory levels in line with lower industry demand. Equity earnings in Basic
Chemicals were $71 million, versus $80 million in the year ago period due to
lower results at MEGlobal. EBIT was $29 million, compared with $165 million in
the second quarter of 2007.
Outlook
Commenting on the Company's outlook, Liveris said: 'The surge in oil
prices, which has further weakened the U.S. economy, has created new
uncertainties in demand around the world. We believe the U.S. economy will
continue to weaken for the rest of 2008, and that the outlook for the global
economy will remain uncertain. Despite this, our results have demonstrated
that our strategy for diversification on a global and end-use market basis has
allowed us to manage through these challenging times.
'In addition, we remain committed to furthering our transformation, and to
changing the earnings profile of our company. Two recent announcements speak
well to this commitment. First, the announcement of our acquisition of Rohm
and Haas, which will create the leading specialty chemicals and advanced
materials company in the world. And second, the selection of the CEO and
headquarters location for K-Dow Petrochemicals, our new joint venture with
Petrochemical Industries Company of Kuwait, which we expect to close by the
end of this year. These actions show our determination, and the progress we
are making toward transforming Dow into an earnings growth company.'
Dow will host a live Webcast of its second quarter earnings conference
call with investors to discuss its results, business outlook and other matters
today at 10:00 a.m. ET on www.dow.com
(1) Earnings before interest, income taxes and minority interests
('EBIT'). A reconciliation of EBIT to 'Net Income Available for
Common Stockholders' is provided following the Operating Segments
table.
(R)(TM) Trademark of The Dow Chemical Company or an affiliated company of
Dow.
About Dow
With annual sales of $54 billion and 46,000 employees worldwide, Dow is a
diversified chemical company that combines the power of science and technology
with the 'Human Element' to constantly improve what is essential to human
progress. The Company delivers a broad range of products and services to
customers in around 160 countries, connecting chemistry and innovation with
the principles of sustainability to help provide everything from fresh water,
food and pharmaceuticals to paints, packaging and personal care products.
References to 'Dow' or the 'Company' mean The Dow Chemical Company and its
consolidated subsidiaries unless otherwise expressly noted. More information
about Dow can be found at www.dow.com
Note: The forward-looking statements contained in this document involve
risks and uncertainties that may affect the Company's operations, markets,
products, services, prices and other factors as discussed in filings with the
Securities and Exchange Commission. These risks and uncertainties include, but
are not limited to, economic, competitive, legal, governmental and
technological factors. Accordingly, there is no assurance that the Company's
expectations will be realized. The Company assumes no obligation to provide
revisions to any forward-looking statements should circumstances change,
except as otherwise required by securities and other applicable laws.
Financial Statements (Note A)
The Dow Chemical Company and Subsidiaries
Consolidated Statements of Income
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
In millions, except per share
amounts (Unaudited) 2008 2007 2008 2007
Net Sales $16,380 $13,265 $31,204 $25,697
Cost of sales 14,643 11,398 27,551 22,003
Research and development
expenses 335 320 666 622
Selling, general and
administrative expenses 515 477 1,013 895
Amortization of intangibles 25 18 47 29
Restructuring credit - 4 - 4
Equity in earnings of
nonconsolidated affiliates 251 258 525 532
Sundry income - net 37 123 83 192
Interest income 25 33 49 73
Interest expense and
amortization of debt
discount 151 129 296 275
Income before Income Taxes and
Minority Interests 1,024 1,341 2,288 2,674
Provision for income taxes 243 277 542 612
Minority interests' share in
income 19 25 43 50
Net Income Available for Common
Stockholders $762 $1,039 $1,703 $2,012
Share Data
Earnings per common share -
basic $0.82 $1.09 $1.82 $2.10
Earnings per common share -
diluted $0.81 $1.07 $1.80 $2.07
Common stock dividends
declared per share of common
stock $0.42 $0.42 $0.84 $0.795
Weighted-average common
shares outstanding - basic 929.8 954.8 936.0 959.0
Weighted-average common
shares outstanding - diluted 939.4 968.0 945.5 971.7
Depreciation $497 $474 $992 $940
Capital Expenditures $597 $462 $956 $792
Notes to the Consolidated Financial Statements:
Note A: The unaudited interim consolidated financial statements reflect
all adjustments which, in the opinion of management, are
considered necessary for a fair presentation of the results for
the periods covered. These statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2007. Except as otherwise
indicated by the context, the terms 'Company' and 'Dow' as used
herein mean The Dow Chemical Company and its consolidated
subsidiaries.
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
June 30, Dec. 31,
In millions (Unaudited) 2008 2007
Assets
Current Assets
Cash and cash equivalents $2,111 $1,736
Marketable securities and
interest-bearing deposits 2 1
Accounts and notes receivable:
Trade (net of allowance for
doubtful receivables - 2008:
$128; 2007: $118) 7,133 5,944
Other 4,223 3,740
Inventories 7,690 6,885
Deferred income tax assets -
current 172 348
Total current assets 21,331 18,654
Investments
Investment in nonconsolidated
affiliates 3,242 3,089
Other investments 2,393 2,489
Noncurrent receivables 373 385
Total investments 6,008 5,963
Property
Property 49,273 47,708
Less accumulated depreciation 34,649 33,320
Net property 14,624 14,388
Other Assets
Goodwill 3,617 3,572
Other intangible assets (net of
accumulated amortization - 2008:
$776; 2007: $721) 794 781
Deferred income tax assets -
noncurrent 2,283 2,126
Asbestos-related insurance
receivables - noncurrent 681 696
Deferred charges and other assets 2,815 2,621
Total other assets 10,190 9,796
Total Assets $52,153 $48,801
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $2,225 $1,548
Long-term debt due within one year 1,051 586
Accounts payable:
Trade 5,493 4,555
Other 2,344 1,981
Income taxes payable 494 728
Deferred income tax liabilities -
current 132 117
Dividends payable 411 418
Accrued and other current
liabilities 2,237 2,512
Total current liabilities 14,387 12,445
Long-Term Debt 8,116 7,581
Other Noncurrent Liabilities
Deferred income tax liabilities -
noncurrent 899 854
Pension and other postretirement
benefits - noncurrent 3,109 3,014
Asbestos-related liabilities -
noncurrent 925 1,001
Other noncurrent obligations 3,347 3,103
Total other noncurrent liabilities 8,280 7,972
Minority Interest in Subsidiaries 237 414
Preferred Securities of Subsidiaries 1,000 1,000
Stockholders' Equity
Common stock 2,453 2,453
Additional paid-in capital 804 902
Retained earnings 18,919 18,004
Accumulated other comprehensive
income (loss) 374 (170)
Treasury stock at cost (2,417) (1,800)
Net stockholders' equity 20,133 19,389
Total Liabilities and Stockholders'
Equity $52,153 $48,801
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Operating Segments
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
In millions (Unaudited) 2008 2007 2008 2007
Sales by operating segment
Performance Plastics $4,418 $3,742 $8,381 $7,271
Performance Chemicals 2,476 2,071 4,799 4,073
Agricultural Sciences 1,360 1,091 2,674 2,127
Basic Plastics 3,780 3,180 7,272 6,074
Basic Chemicals 1,642 1,455 3,201 2,726
Hydrocarbons and Energy 2,618 1,623 4,783 3,235
Unallocated and Other 86 103 94 191
Total $16,380 $13,265 $31,204 $25,697
EBIT (1) by operating segment
Performance Plastics $268 $382 $597 $823
Performance Chemicals 290 294 561 606
Agricultural Sciences 335 208 666 490
Basic Plastics 388 529 815 1,056
Basic Chemicals 29 165 188 299
Hydrocarbons and Energy - (1) - (1)
Unallocated and Other (160) (140) (292) (397)
Total $1,150 $1,437 $2,535 $2,876
Equity in earnings (losses) of
nonconsolidated affiliates by
operating segment (included in EBIT)
Performance Plastics $12 $14 $30 $40
Performance Chemicals 119 104 214 209
Agricultural Sciences 1 - 2 -
Basic Plastics 33 48 75 102
Basic Chemicals 71 80 168 155
Hydrocarbons and Energy 16 12 38 27
Unallocated and Other (1) - (2) (1)
Total $251 $258 $525 $532
(1) The Company uses EBIT (which Dow defines as earnings before
interest, income taxes and minority interests) as its measure of
profit/loss for segment reporting purposes. EBIT includes all
operating items related to the businesses and excludes items that
principally apply to the Company as a whole. A reconciliation of
EBIT to 'Net Income Available for Common Stockholders' is provided
below:
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
EBIT $1,150 $1,437 $2,535 $2,876
+ Interest income 25 33 49 73
- Interest expense and
amortization of debt discount 151 129 296 275
- Provision for income taxes 243 277 542 612
- Minority interests' share in
income 19 25 43 50
Net Income Available for Common
Stockholders $762 $1,039 $1,703 $2,012
Sales Volume and Price by Operating Segment
Three Months Ended Six Months Ended
June 30, 2008 June 30, 2008
Percentage change from prior year Volume Price Total Volume Price Total
Operating segments
Performance Plastics 7% 11% 18% 5% 10% 15%
Performance Chemicals 6% 14% 20% 6% 12% 18%
Agricultural Sciences 13% 12% 25% 13% 13% 26%
Basic Plastics (3)% 22% 19% (3)% 23% 20%
Basic Chemicals (7)% 20% 13% (6)% 23% 17%
Hydrocarbons and Energy 19% 42% 61% 10% 38% 48%
Total 5% 18% 23% 3% 18% 21%
The Dow Chemical Company and Subsidiaries
Sales by Geographic Area
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
In millions (Unaudited) 2008 2007 2008 2007
Sales by geographic area
North America $5,968 $5,418 $11,254 $10,039
Europe 6,347 4,674 12,205 9,475
Asia Pacific 1,913 1,543 3,622 2,947
Latin America 1,665 1,334 3,234 2,622
India, Middle East and Africa 487 296 889 614
Total $16,380 $13,265 $31,204 $25,697
Sales Volume and Price by Geographic Area
Three Months Ended Six Months Ended
June 30, 2008 June 30, 2008
Percentage change from prior year Volume Price Total Volume Price Total
Geographic areas
North America (6)% 16% 10% (4)% 16% 12%
Europe 11% 25% 36% 5% 24% 29%
Asia Pacific 12% 12% 24% 11% 12% 23%
Latin America 5% 20% 25% 4% 19% 23%
India, Middle East and Africa 47% 18% 65% 29% 16% 45%
Total 5% 18% 23% 3% 18% 21%
SOURCE The Dow Chemical Company