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Dow Earnings Jump 17%

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MIDLAND (WWJ) – Dow Chemical Co. Thursday reported third quarter net income of $594 million or 49 cents a share, up from $497 million or 42 cents a share a year earlier.

Revenue was $13.73 billion, up 1 percent from $13.64 billion a year earlier. The sales increase was led by agricultural sciences (up 8 percent) and coatings and infrastructure, and performance plastics, both up 6 percent).

For the nine months, net income was $3.48 billion or $2.88 a share, up from $1.81 billion or $1.31 a share in the same period a year earlier. Revenue was $42.69 billion, up from $42.87 billion a year earlier.

Sales also rose in most geographic areas, with emerging countries delivering sales growth of 5 percent, led by Latin America.

Dow said it generated more than $1.4 billion in cash flow from operations in the quarter, representing a nearly $300 million, or 27 percent, increase versus the year-ago period. Year to date, Dow has generated $5.6 billion in cash flow from operations, representing an improvement of nearly $3.1 billion compared with the prior year.

The company said its sales volume fell 2 percent, while its prices rose 3 percent.

Dow said it reduced gross debt by $200 million in the quarter and $2.4 billion year to date, resulting in a nearly $120 million decline in interest expense year to date. Since 2010, Dow has reduced its debt by $5.2 billion, and its interest expense by more than $300 million.

“Dow continued to demonstrate positive momentum with our drive to execute self-help measures in a slow-growth world, achieving strong cash flow, as well as year-over-year earnings growth for the fourth consecutive quarter,” said Dow chairman and CEO Andrew N. Liveris. “Through our integrated value chains and the diversity of our targeted end markets, we continue to demonstrate strong performance — particularly in emerging geographies, in our equity earnings, and in key downstream businesses such as electronics, coatings and infrastructure, and packaging. We continue to prioritize our resources to focus on these and other high-growth markets. Over the last 12 months, using return on capital as our lens, we have pruned non-strategic businesses such as the recently announced divestiture of our polypropylene licensing and catalysts business, and deemphasized low-growth, commoditizing businesses, such as the announcements we have made on the chlorine value chain. We have identified targets and are moving forward with defined divestiture plans … the proceeds of these divestitures will create further capacity for the company to generate returns to shareholders. Our cash priorities remain intact: rewarding our shareholders, reducing interest payments from our debt structure and funding organic growth.”

The company also reported adjusted earnings of 50 cents a share, excluding costs related to restructuring programs.

Electronic and Functional Materials: Electronic and Functional Materials sales were $1.2 billion, up 5 percent compared with the same quarter last year, as volume growth of 6 percent more than offset a 1 percent price decline. Dow Electronic Materials delivered healthy volume gains due to ongoing strong demand for OLED materials in mobile devices, as well as share gains in functional films. This more than offset the impact of a weaker Japanese yen. Functional Materials delivered sales gains as stronger demand in energy and home care sectors grew volume in Dow Microbial Control and Consumer and Industrial Solutions, respectively. This more than offset volume declines due to soft demand in the cellulosics chain, which impacted Dow Pharma and Food Solutions. Equity earnings for the segment were $36 million, up $9 million from the third quarter of last year, driven primarily by Dow Corning. EBITDA increased to $287 million, up $14 million or 5 percent over the same quarter last year, due to sales growth, as well as healthy margins resulting from tight cost controls.

Coatings and Infrastructure Solutions: Coatings and Infrastructure Solutions reported sales of $1.8 billion, up 6 percent versus the prior year, as volume grew 5 percent and price increased 1 percent. Sales gains were broad based, with increases across all businesses and geographic areas. Dow Building and Construction grew sales as a result of volume gains in all regions. Strong sales increases in architectural coatings drove growth in Dow Coating Materials. Performance Monomers delivered double-digit sales gains in North America and Asia Pacific. Sales rose in Dow Water and Process Solutions, due to healthy demand in reverse osmosis technologies in Asia Pacific. Equity earnings for the segment increased to $32 million from $29 million the same quarter last year. EBITDA was $283 million, an increase of $37 million or 15 percent versus the same quarter last year, reflecting the benefits of cost controls as a result of restructuring efforts, coupled with improving demand.

Agricultural Sciences: Agricultural Sciences reported record third quarter sales of $1.4 billion, up 8 percent versus the year-ago period. Volume increased 5 percent and price rose 3 percent. Volume gains were driven by double-digit growth in Latin America. Third quarter Crop Protection sales rose 10 percent, driven by higher sales of herbicides in North America and Latin America, and higher sales of insecticides in Latin America. Year to date, sales of new Crop Protection products are up 12 percent led by pyroxsulam herbicide. Seeds, Traits and Oils (ST&O) sales were down 4 percent in the quarter versus the year-ago period with higher return activity in North America driven by a late, wet planting season more than offsetting double-digit gains in Latin America. Year to date, ST&O sales are up 18 percent driven by strong farmer demand for SmartStax corn hybrids and growth in most major crops. EBITDA for the segment was $18 million, down from $63 million in the same quarter last year. Third quarter EBITDA margins reflect the impact of higher seed return activity in North America and increased spending on growth investments in the seasonally lowest sales quarter.

Performance Materials: Sales in Performance Materials were $3.3 billion, down 3 percent versus the year-ago period. Volume decreased 4 percent, while price rose 1 percent compared with the same quarter last year. Dow Automotive Systems delivered volume gains due primarily to ongoing strength in North American transportation fundamentals. Volume also rose in Propylene Oxide/Propylene Glycol on continued healthy fundamentals in home and personal care products in North America. These gains were more than offset by declines in Epoxy, driven by ongoing industry competitive dynamics. In Polyglycols, Surfactants and Fluids volume also declined due to fewer projects this quarter in concentrated solar power applications. Price rose 1 percent with gains in most businesses, and increases in North America and Europe, Middle East and Africa (EMEA). Rising raw material costs, coupled with unfavorable supply and demand dynamics, more than offset this increase, leading to margin contraction – particularly in Epoxy, Chlorinated Organics, Polyurethanes and Propylene Oxide/Propylene Glycol. Equity losses for the quarter were $11 million versus losses of $30 million in the same quarter last year. The segment reported EBITDA of $314 million. This compares with EBITDA of $491 million in the year-ago period.

Performance Plastics: Sales in Performance Plastics were $3.6 billion, up 3 percent versus the year-ago period. Excluding the impact of divestures, sales were up 6 percent, with double-digit increases achieved in North America and Asia Pacific, and strong sales gains in Latin America. Dow Packaging & Specialty Plastics improved sales in North America, Asia Pacific and Latin America, more than offsetting lower sales in Europe that were primarily impacted by the previously announced shutdown of a facility in Tessenderlo, Belgium. Gains in flexible food and specialty packaging delivered the largest increase over the year-ago period. Sales were down in Dow Elastomers driven by pricing pressure relative to year-ago levels. Solid demand in transportation markets and hot melt adhesives for carton sealing and nonwoven markets fueled higher sales of Engage and Affinity. Dow Electrical and Telecommunications had lower sales on softer demand from power markets, partially offset by improved pricing in North America, EMEA and Asia Pacific. Equity earnings for the segment were $134 million, up from $28 million in the year-ago period. EBITDA for the segment was $970 million, up 32 percent from the same period last year. Segment EBITDA margin expansion was driven by broad-based pricing gains across all geographies.

Feedstocks and Energy: Sales in Feedstocks and Energy were $2.3 billion, down 7 percent versus the same period last year. Price was flat while volume declined by 7 percent. The decrease in volume was largely driven by Hydrocarbons in Europe due to lower operating rates and a lighter ethylene cracker feedslate. Caustic soda was also a contributing factor to the year-over-year volume decrease, primarily due to limited product availability associated with turnarounds. Equity earnings were $135 million, up from $123 million in the same quarter last year. EBITDA for the segment was $187 million, a decrease from $200 million in the year-ago period.

More, including a replay of a Webcast discussing these results, at http://www.dow.com.

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