MIDLAND (WWJ) — Dow Chemical Co. (NYSE: DOW) reported revenue of $14.58 billion for the second quarter ended June 30, up from $14.51 billion a year earier.

Net income was $2.44 billion or $1.87 a share, up from $740 million or 55 cents a share a year earlier.

The company also reported “adjusted” earnings of 64 cents a share, up from 55 cents a year earlier. The adjusted earnings exclude the impact of the final resolution of the K-Dow arbitration and Dow’s receipt of a direct cash payment of $2.16 billion to settle the dispute. Also excluded from adjusted earnings were a $110 million loss for early repayment of debt and a $12 million restructuring charge.

Dow applied the K-Dow arbitration award to debt reduction, slashing its net debt to total capitalization to 36.4 percent. In addition, interest expense is expected to be down more than $150 million on a full-year basis, with a decline of more than $30 million in the quarter.

Dow said it has generated $3.7 billion in cash flow from operations in the quarter. Year to date, the Company has generated $4.2 billion in cash flow from operations, an improvement of $2.8 billion compared with the prior year.

Sales were $14.6 billion, flat versus the year-ago period. Sales gains were led by Agricultural Sciences, which was up 10 percent in the quarter and achieved a first-half sales record of nearly $4 billion. Sales also grew in Performance Materials (up 1 percent).

Volume increased 2 percent with gains in most geographic areas. Volume growth in emerging geographic areas rose 9 percent, led by double-digit growth in Latin America (up 12 percent). Volume also increased in Asia Pacific (up 7 percent).

Price decreased 2 percent, with currency representing nearly one-third of the decline. The Feedstocks and Energy operating segment led the decrease (down 4 percent), due to a declining feedstock cost environment.

“Our results in the second quarter are indicative of Dow’s focus and drive to aggressively manage our portfolio and generate momentum across our enterprise – expanding margins, growing cash flow and increasing earnings, even in the midst of a slow-growth macroeconomic environment,” Dow chairman and CEO Andrew N. Liveris said in a statement. “Strong performance in Agricultural Sciences and Performance Plastics clearly demonstrates Dow’s market and technology leadership in those segments. We also are fully implementing aggressive improvement plans in those segments that do not currently meet our return on capital expectations. Our strong cash generation, our deployment of K-Dow proceeds to pay down debt and our ongoing $1.5 billion share buyback program are all focused on rewarding our shareholders — and we will continue to do so as our earnings grow.”

By business unit, results were as follows:

Electronic and Functional Materials: Sales in Electronic and Functional Materials were $1.2 billion, or flat compared with the same quarter last year, as volume increases of 2 percent were offset by price declines of 2 percent. In Dow Electronic Materials, strong growth in films and OLED drove higher sales in Display Technologies. Overall, Dow Electronic Materials sales were flat with Semiconductor Technologies experiencing softer demand in the quarter. In Functional Materials, overall sales were flat. Dow Microbial Control grew sales in all regions, delivering a new quarterly sales record primarily due to strength in the energy markets. Equity earnings for the segment were $28 million, down from $35 million in the second quarter of last year driven primarily by Dow Corning. EBITDA for the segment was $254 million, down $33 million from the year-ago period.

Coatings and Infrastructure Solutions: Coatings and Infrastructure Solutions reported sales of $1.9 billion, flat versus the prior year, as volume rose 2 percent and price declined 2 percent. Volume growth for the segment was recorded in all regions except Europe, Middle East and Africa. Dow Coating Materials sales increased as volume gains slightly offset price declines. Sales declines in Dow Building and Construction were led by Dow Building Solutions in EMEA, which continues to experience a weak overall construction market. Equity earnings were $25 million, down from $45 million in the year-ago period primarily as a result of lower earnings from Dow Corning. EBITDA of $250 million for the segment declined from $337 million in the same quarter of 2012.

Agricultural Sciences: Agricultural Sciences reported record second quarter sales of nearly $1.9 billion, up 10 percent versus the year-ago period. Volume increased 9 percent and price rose 1 percent. Volume gains were achieved in all geographic areas led by Latin America. Second quarter sales of Crop Protection rose 12 percent, with increases in all geographic areas. Latin America posted the largest gains, driven by higher sales of herbicides and insecticides. Sales of new crop protection products grew 14 percent for the quarter. Seeds, Traits and Oils (ST&O) sales were up 4 percent in the quarter versus the year-ago period. Year-to-date, ST&O sales are up 23 percent, driven by strong farmer demand for SmartStax corn hybrids. EBITDA for the segment was $290 million, down from last year’s record second quarter EBITDA of $307 million, reflecting a shift in seasonal buying patterns and increased growth investments. Agricultural Sciences achieved a new first half EBITDA record of $774 million.

Performance Materials: Sales in Performance Materials were $3.4 billion, up 1 percent versus the year-ago period. Volume grew 4 percent, while price declined 3 percent compared with the same quarter last year. Volume increases were driven by improved asset supply and market share gains within Polyurethanes and Propylene Oxide/Propylene Glycol. Lower propylene costs drove lower market pricing levels. Competitive pricing pressure stemming from unfavorable supply/demand dynamics – particularly in Epoxy, Chlorinated Organics, Polyurethanes and Propylene Oxide/Propylene Glycol – impacted overall margins. Equity losses for the quarter were $12 million versus losses of $20 million in the same quarter last year. The segment reported EBITDA of $284 million. This compares with EBITDA of $350 million in the year-ago period.

Performance Plastics: Sales in Performance Plastics were $3.7 billion, down 1 percent compared with the same quarter last year. The decline reflects the previously announced shutdown of a high-density polyethylene facility in Tessenderlo, Belgium. Dow Packaging and Specialty Plastics improved sales in North America, Latin America and Asia Pacific, more than offsetting lower sales in Europe that were primarily impacted by the Tessenderlo closure. Sales in food and specialty packaging showed great strength across all geographic regions. Transportation demand and improvements in hot melt adhesives for carton sealing and nonwoven markets fueled a record volume quarter for Dow Elastomers. Revenues were down on lower market pricing levels versus the comparative period. Dow Electrical and Telecommunications expanded margins on effective execution of business initiatives, particularly in the power market, though sales were down due to the transition leading up to the July 1, 2013 divesture of the Company’s 50 percent ownership in Nippon Unicar Co. Ltd. Equity earnings for the segment were $88 million, up from $39 million in the year-ago period. EBITDA for the segment was $1 billion, up 33 percent from the same period last year. Segment EBITDA margins expanded by 700 basis points to 27.5 percent. The segment has achieved six consecutive quarters of sequential margin expansion.

Feedstocks and Energy: Sales in Feedstocks and Energy were $2.5 billion, down 4 percent versus the same period last year. Price declined 4 percent due to falling monomers, while volume was flat. Volume gains in EO/EG were offset by decreases in Hydrocarbons associated with lower operating rates and a lighter feedslate in Europe. Equity earnings were $105 million, up from $52 million in the same quarter last year. EBITDA for the segment was $193 million, an increase from $134 million in the year-ago period.

For the six months, revenue was $28.96 billion, down from $29.23 billion. Net income was $3.1 billion or $2.36 a share, up from $1.26 billion or 90 cents a share a year earlier.


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