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Dow Chemical Reports Higher Profit Despite Revenue Dip

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Dow Chemical photo

Dow Chemical photo

MIDLAND — Dow Chemical Co. (NYSE: DOW) reported higher profit in the first quarter ended March 31.

Net income was $550 million or 46 cents a share, up from $412 million or 35 cents a share in the first quarter of 2012.

Adjusted earnings were 69 cents a share, up from 61 percent. The adjusted earnings exclude non-cash charges reflecting the adjustment of uncertain tax positions, a charge related to the early extinguishment of debt and a charge for implementation costs related to the company’s restructuring programs.

Revenue was $14.4 billion, down 2 percent from $14.7 billion in the same quarter last year. However, agricultural sciences sales rose 14 percent to top $2 billion. Electronic and functional materials sales also grew.

Sales in Latin America grew 6 percent. Sales were flat in North America and tumbled 12 percent in Europe.

Purchased raw material costs, including hydrocarbons and energy, declined nearly $300 million from year-ago levels.

“Our performance this quarter demonstrates our team’s continuing determination to deliver earnings growth, despite ongoing uncertainties in the global economy,” chairman and CEO Andrew N. Liveris said. “We are aggressively managing our businesses and driving near-term execution measures — demonstrated by this quarter’s marked improvement in both margins and profitability. We continue to deliver on our plan by implementing cost and cash flow actions, paying down debt, improving return on capital and taking firm decisions on our portfolio, as evidenced by our recently announced target of $1.5 billion in proceeds from divestitures in the near term. Collectively, our proactive, execution-focused actions position Dow well to navigate ongoing challenging market conditions and deliver value to our shareholders. We expect the results of these actions to accelerate throughout the year.”

Dow’s global operating rate was 82 percent, up 4 percentage points sequentially and down 1 percentage point versus the year-ago period.

Cash flow from operations increased nearly $500 million versus the year-ago period.

Research and development expenses were $435 million, up 7 percent versus the same period last year, reflecting continued investments in Dow’s technology-driven segments, particularly Agricultural Sciences.

Selling, general and administrative expenses rose 9 percent to $772 million versus the year-ago period, led by increased investments in Agricultural Sciences.

Equity earnings were $230 million, versus $169 million in the same quarter last year, primarily reflecting gains in the company’s cost-advantaged joint ventures in Kuwait.

Dow continued to drive deleveraging actions, reducing gross debt by $901 million in the quarter. In addition, interest expense declined $33 million versus the year-ago period due to ongoing debt reduction.

“Our performance this quarter demonstrates our team’s continuing determination to deliver earnings growth, despite ongoing uncertainties in the global economy,” said Andrew N. Liveris, Dow’s chairman and CEO. “We are aggressively managing our businesses and driving near-term execution measures – demonstrated by this quarter’s marked improvement in both margins and profitability. We continue to deliver on our plan by implementing cost and cash flow actions, paying down debt, improving return on capital and taking firm decisions on our portfolio, as evidenced by our recently announced target of $1.5 billion in proceeds from divestitures in the near term. Collectively, our proactive, execution-focused actions position Dow well to navigate ongoing challenging market conditions and deliver value to our shareholders. We expect the results of these actions to accelerate throughout the year.”

Electronic and Functional Materials: Sales in Electronic and Functional Materials were $1.1 billion, up 2 percent from the same quarter last year, as volume growth of 3 percent was slightly offset by a 1 percent decline in price. Revenue declined slightly in Dow Electronic Materials, as volume increases were offset by price declines due in part to currency. Semiconductor Technologies showed volume growth due to strength in memory manufacturing. Functional Materials revenue grew due to increased volumes in all businesses and many key market sectors, with improvements in the pharmaceutical sector, coupled with continued resiliency in food and energy sectors. Equity earnings for the segment were $17 million, down from $19 million in the year-ago period. EBITDA for the segment was $273 million. This compares with EBITDA of $243 million or adjusted EBITDA of $260 million in the same quarter last year.

Coatings and Infrastructure Solutions: Coatings and Infrastructure Solutions reported sales of $1.7 billion, down 2 percent from the prior year. Price held flat, while volume was down 2 percent. Volume declines were primarily driven by Dow Building and Construction, due to difficult business conditions in Europe and the Company’s restructuring actions in that region. Volume declines were also impacted by slower non-residential construction demand in North America. Dow Coating Materials sales were flat, with volume growth in North America and Asia Pacific offset primarily by declines in Europe. Dow Water and Process Solutions recorded sales growth due to improving demand from stronger market conditions, which were slightly offset by price declines due to the unfavorable impact of currency. Equity earnings were $26 million, compared with $22 million in the same quarter last year. EBITDA for the segment was $186 million, down from EBITDA of $204 million, or adjusted EBITDA of $245 million in the year-ago period.

Agricultural Sciences: Agricultural Sciences reported record first quarter sales of $2.1 billion, up 14 percent versus the year-ago period. Volume increased 11 percent and price rose 3 percent. New sales records were posted in Crop Protection and Seeds, Traits and Oils. First quarter sales of Crop Protection rose 7 percent, driven by gains in North America and Latin America. Sales of new crop protection products grew significantly for the quarter, with growth led by pyroxsulam herbicide. Seeds, Traits and Oils achieved a 37 percent sales gain in the quarter versus the year-ago period, driven by strong farmer demand for SmartStax®products across North and Latin America. EBITDA for the segment was a new first quarter record of $484 million, up 7 percent from $451 million in the year-ago period.

Performance Materials: Sales in Performance Materials were $3.3 billion, down 4 percent versus the year-ago period. Volume declined 5 percent, while price rose 1 percent compared with the same period last year. Momentum in the quarter drove price improvements over the comparable period, with volumes down on softer demand. Notable price improvements were achieved in Polyurethanes, Formulated Systems and Oxygenated Solvents. Lower volumes were reported in Epoxy and Polyurethanes, as these businesses aggressively pursued price to improve underlying profitability. Equity losses for the quarter were $23 million versus losses of $17 million in the same quarter last year. The segment reported EBITDA of $440 million. This compares with EBITDA of $332 million, or $518 million on an adjusted basis during the year-ago period.

Performance Plastics: Sales in Performance Plastics were $3.5 billion, down 3 percent compared with the same quarter last year. Volume declined 3 percent and price was flat. Volumes were lower on weak market demand primarily in Europe, coupled with the previously announced shutdown of a high-density polyethylene facility in Tessenderlo, Belgium. Dow Packaging and Specialty Plastics reported improved volumes in North America and Latin America, where the Company also benefited from strong ongoing feedstock fundamentals. These volume increases were offset by lower volumes in Europe and Asia Pacific. Dow Elastomers achieved a record volume quarter due to stable automotive builds in North America and improvements in adhesive markets. Sales were down on price declines from year-ago levels. Dow Electrical and Telecommunications sales were down on lower sales in Asia Pacific, but margins expanded on lower feedstock costs and effective execution of pricing initiatives. Equity earnings for the segment were $57 million, up from $34 million in the year-ago period. EBITDA for the segment was $952 million, up 33 percent from $718 million in the same period last year.

Feedstocks and Energy: Sales in Feedstocks and Energy were $2.6 billion, down 13 percent versus the same period last year. Price rose 1 percent, while volume declined 14 percent, due primarily to slower market demand in Europe, resulting in reduced operating rates. The ramp down of supply agreements related to the divestiture of Dow’s polypropylene business was also a key driver of volume declines during the quarter. Equity earnings were $159 million, up from $125 million in the same quarter last year. EBITDA for the segment was $240 million, an increase from $198 million in the year-ago period.

Commenting on the company’s outlook, Liveris said: “Dow’s focus remains unrelenting in implementing the specific plans we have in place to accelerate near-term value creation: organically growing attractive, high-growth businesses, improving businesses where the return on capital is not meeting our expectations, and leveraging the strength of our advantaged feedstock position and flexibility. Importantly, we continue to review our entire portfolio to identify other divestitures or strategic actions we can take to ensure we optimize value for shareholders. We have previously stated that our business plans did not call for material macroeconomic improvements in 2013 versus 2012. Given persistent volatility and uncertainty, this remains the right mindset for operating the company. Moving through 2013, we are singularly focused on driving aggressive measures, quarter-by-quarter, and we remain confident our actions will deliver on our plan for the year.

More at at www.dow.com.

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