Dow Reports First Quarter Results Record First Quarter Sales and Solid Earnings — Underscore Strength of Company’s Integrated and Diverse Portfolio
First Quarter of 2007 Highlights
* Sales for the three months ended March 31, 2007 set a new first quarter record for the Company, rising 3 percent from the same period last year to $12.4 billion, with strong underlying volume and solid price increases across most businesses.
* Double-digit sales improvements in Europe, Asia Pacific and Latin America more than offset continued weakness in North America, particularly in the housing and automotive sectors.
* Earnings were $1.00 per share, down from $1.24 in the same period last year. The fall was principally due to a decline in licensing revenues from extremely high levels a year ago.
* Equity earnings for the quarter were $274 million, an increase of more than 60 percent compared with the first quarter of 2006, reflecting the value of the Company’s asset light strategy.
Andrew N. Liveris, Dow’s chairman and chief executive officer, stated:
“We have spoken a great deal recently about the power of Dow’s integration and diversification – and these results amplify those words. Our geographic balance meant that robust sales in Europe, Asia Pacific and Latin America more than offset continued weakness in North America; strong growth in many of our Performance businesses and in Basic Plastics countered a downturn in Basic Chemicals; our joint ventures contributed another quarter of excellent earnings; and we continued to strengthen our position in several key industries through our market-facing business model.”
Q1 2007 Earnings
Review of First Quarter Results
The Dow Chemical Company (NYSE: DOW) reported sales of $12.4 billion for the first quarter of 2007, 3 percent higher than in the same period last year, and a new first quarter record.
Year over year, volume was up 1 percent, with solid gains across most businesses. Asia Pacific, Latin America and Europe all reported good demand growth – with volume increases of 13 percent, 8 percent and 7 percent, respectively – more than offsetting an 8 percent decline in North America. Price edged 2 percent higher, with healthy gains across most of the Company’s Performance businesses and in Basic Plastics, dampened by lower prices in Basic Chemicals.
Net income for the quarter was $973 million, down from $1.2 billion in the same period of 2006, which included significant licensing revenue within the Performance Plastics segment. Earnings per share were $1.00, compared with $1.24 a year ago. The fall was principally due to a decline in licensing revenues from extremely high levels a year ago.
Early in the quarter, the Company benefited from a temporary lull in the rising cost of purchased feedstocks and energy, resulting in a year-over-year decline of 2 percent compared with the same period in 2006, allowing some margin restoration. Equity earnings were again strong as the Company’s asset light strategy – focused on creating long-term competitive advantage through joint ventures – continued its trend of recent times, contributing $274 million in the quarter, more than 60 percent higher than the same period a year ago. This reflects very strong results at Dow Corning, Siam Polyethylene and Univation Technologies, and the absence of maintenance turnarounds at the EQUATE and OPTIMAL joint ventures.
“Our results this quarter were strong and encouraging … with record first quarter sales; solid demand across most businesses and in every geography outside North America; the foundation for price momentum in many of our businesses; and earnings that again underscore the strength of our strategic agenda,” said Andrew N. Liveris, Dow’s chairman and chief executive officer.
“We have spoken a great deal recently about the power of Dow’s integration and diversification – and these results amplify those words. Our geographic balance meant that robust sales in Europe, Asia Pacific and Latin America more than offset continued weakness in North America; strong growth in many of our Performance businesses and in Basic Plastics countered a downturn in Basic Chemicals; our joint ventures contributed another quarter of excellent earnings; and we continued to strengthen our position in several key industries through our market-facing business model,” he said.
In the Performance Plastics segment, sales for the first quarter were $3.5 billion, up 1 percent from the same period in 2006, with significant strength in Europe, Asia Pacific and Latin America more than offsetting a sharp decline in North America. Price rose 6 percent from a year ago while volume declined 5 percent, reflecting particular weakness in the U.S. housing and automotive sectors and lower licensing revenue. Dow Epoxy had another outstanding quarter, with strong demand growth and solid price increases in every geographic region. Product differentiation spurred strong demand in higher value applications, particularly in coatings and civil engineering, with continued strength in the wind energy sector. Polyurethanes and Polyurethane Systems also saw robust increases in price and volume in all regions outside North America, with strong industry fundamentals in adhesives, sealants and elastomers and healthy demand for industrial refrigeration applications. Specialty Plastics and Elastomers achieved record quarterly sales, with particular strength in Wire and Cable driven by demand for fiber optic internet connections and high voltage power distribution applications. Performance Elastomers and Plastomers also saw significant volume growth, with healthy gains in both ENGAGE™ elastomers and VERSIFY™ elastomers and plastomers. Equity earnings for the Performance Plastics segment increased compared with the same period last year, largely reflecting improved results at Univation. First quarter EBIT(1) for the Performance Plastics segment was $441 million, compared with $726 million in the first quarter of 2006.
Sales in Performance Chemicals rose to $2.0 billion for the first quarter of 2007, 6 percent higher than the same period last year. Volume increased 3 percent, with strong demand in the Designed Polymers and Specialty Chemicals businesses more than offsetting a decline in Dow Latex, where the business focused on effective price/volume management and faced continued softness in coated paper applications. Price was also up 3 percent compared with the first quarter of 2006, with increases across most businesses. Within Designed Polymers, Dow Water Solutions saw revenues increase by more than 30 percent compared with the first quarter last year, reflecting solid demand for ion exchange resins in industrial water treatment and water remediation applications, and the acquisition of Zhejiang Omex Environmental Engineering last July. The business continues to see strong sales of Omex systems within China and Omex components in other geographic regions. Specialty Chemicals saw volume improvements in all regions, with very strong growth in Asia Pacific and good demand from the agricultural chemicals sector and the electronic manufacturing industry. Equity earnings in the Performance Chemicals segment rose by more than 50 percent compared with the same quarter in 2006, with notable improvements at both Dow Corning and OPTIMAL. Performance Chemicals reported EBIT of $312 million for the first quarter of 2007, up from $301 million a year ago.
Agricultural Sciences posted record quarterly sales of $1.0 billion, 8 percent higher than the same period in 2006. This improvement was driven by volume, which increased 7 percent, as mild weather in Europe accelerated the planting season, resulting in very strong sales of high value cereal herbicides. Sales of sunflower seeds increased significantly compared with the first quarter of 2006 due to increased demand for heart healthy oil in Mexico and the United States. Rising soybean prices improved economic conditions for farmers in Latin America, spurring stronger sales of herbicide and insecticide products in Brazil and Argentina. First quarter EBIT for Agricultural Sciences increased from $216 million in 2006 to $282 million in 2007.
Basic Plastics sales rose 3 percent in the first quarter, from $2.8 billion in 2006 to $2.9 billion in 2007. Price was up 1 percent and volume increased 2 percent, despite the impact of plant shutdowns in Canada and the sale of the Company’s Safripol business in South Africa in the fourth quarter of 2006. Polyethylene, in particular, had a strong quarter, with solid volume gains across all geographic regions and positive price momentum moving through the quarter, reflecting healthy industry fundamentals. Polystyrene reported higher prices across all geographic regions, restoring a portion of the margin that had been lost to escalating raw material costs. The business also saw strong demand in both Europe and Asia Pacific and improved volume in Latin America. Equity earnings in the first quarter increased significantly from the same period in 2006, reflecting higher contributions from both Siam Polyethylene and EQUATE. First quarter EBIT for the Basic Plastics segment was $527 million, 11 percent higher than $476 million in the same period last year.
First quarter sales in the Basic Chemicals segment declined 7 percent in 2007 compared with a year ago, from $1.4 billion to $1.3 billion. Price fell 4 percent, while volume declined 3 percent, as improved demand in Europe and Latin America failed to offset a marked decline in North America, which was due in part to the shutdown of the Company’s chlor-vinyl facilities in Canada in October last year. Vinyl chloride monomer demand increased slightly, but margins were severely compressed as inventory corrections throughout the PVC industry at the end of 2006 triggered significantly lower prices. Caustic soda reported a sharp fall in price compared with the year ago quarter, when prices spiked due to the lingering effects of the U.S. Gulf Coast hurricanes. Solvents and Intermediates saw significant improvements in both price and volume with strength across all geographic regions outside the United States, reflecting solid demand for coating applications. In Ethylene Oxide / Ethylene Glycol, price improved compared with the same quarter of 2006, but volume declined, reflecting the restructuring of certain supply agreements within the business. Compared with the same period a year ago, equity earnings increased substantially in the first quarter of 2007 compared with the same period a year ago, due to a strong performance and the absence of turnarounds at OPTIMAL and EQUATE. Basic Chemicals reported EBIT for the first quarter of $134 million, down 13 percent from $154 million in the first quarter of last year.
Commenting on the Company’s outlook, Liveris said: “We expect solid global demand to continue through 2007, although North America will likely be slower than in 2006.
“While there was a temporary pause in feedstock and energy cost increases at the start of the year, we saw a sharp change in direction mid-way through the quarter and expect second quarter costs to be higher than the same period last year. That said, strong demand and good pricing momentum has continued through April - reinforcing our view that 2007 will be another solid year for the Company, and that our strategy will continue to maximize shareholder value for the long term.”
(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.
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* Dow will host a live webcast of its first quarter earnings conference call with investors to discuss its results, business outlook and other matters today at 10:00 a.m. EDT on www.dow.com.
* Dow will host a live webcast of its Annual Meeting of Stockholders on Thursday, May 10, 2007, at 10.00 a.m. EDT on www.dow.com.
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