Midland, Michigan - July 25, 2019
FINANCIAL HIGHLIGHTS
- GAAP EPS from continuing operations was $0.10; Op. EPS¹ of $0.86.
- GAAP Net Income was $90 million; Op. EBIT¹ of $1.1 billion.
- Net Sales were $11.0 billion, in-line with the Company’s guidance and down 14% versus pro forma results in the year-ago period, driven primarily by local price declines in polyethylene, siloxanes and isocyanates and lower sales of hydrocarbon co-products.
- Volume declined 3% versus pro forma results in the year-ago period, driven primarily by higher ethane feedstock usage and lower hydrocarbon co-product sales, due to increased ethylene integration from the startup of new downstream assets. This was partly offset by demand growth in plastics packaging applications, supported by new capacity on the U.S. Gulf Coast.
- Local price declined 9% versus pro forma results in the year-ago period, with declines in all segments. Currency decreased sales by 2%, driven primarily by Europe, Middle East, Africa & India (EMEAI).
- Equity losses were $15 million, compared to pro forma equity earnings of $193 million in the year-ago period. The reduction was primarily driven by margin compression in monoethylene glycol (MEG) and polyethylene at the Kuwait joint ventures and isocyanates at the Sadara joint venture.
- Operating EBIT was $1.1 billion, down 35% versus pro forma results in the year-ago period. Margin compression in polyethylene, isocyanates and siloxanes, as well as lower equity earnings, more than offset volume gains in packaging applications, contributions from new capacity on the U.S. Gulf Coast and savings from cost synergies and stranded cost removal.
- Delivered more than $130 million of cost synergy savings and $45 million of stranded cost removal.
- Cash provided by operating activities - continuing operations was $960 million, up 26% versus results in the year-ago period.
- Returned $0.8 billion to shareholders in the quarter, including $0.5 billion in dividends and $0.3 billion in share repurchases.
SUMMARY FINANCIAL RESULTS
| Three Months Ended June 30 | Three Months Ended March 31 | ||||
|---|---|---|---|---|---|
| In millions, except per share amounts | 2Q19 As Reported | 2Q182 Pro Forma | vs. SQLY [B / (W)] | 1Q192 Pro Forma | vs. PQ [B / (W)] |
| Net Sales | $11,014 | $12,851 | $(1,837) | $11,016 | $(2) |
| Operating EBIT1 | $1,059 | $1,639 | $(580) | $1,143 | $(84) |
| Op. EBIT Margin1 | 9.6% | 12.8% | (320) bps | 10.4% | (80) bps |
| Operating EBITDA1 | $1,802 | $2,362 | $(560) | $1,886 | $(84) |
| Operating EPS1 | $0.86 | $1.41 | $(0.55) | $0.98 | $(0.12) |
| Cash provided by operating activities – continuing operations | $960 | $760 | $200 | $1,043 | $(83) |
1. Op. EPS, Op. EBIT, Op. EBIT Margin and Op. EBITDA are non-GAAP measures. See page 13 for further discussion.
2. Financial information for the three months ended March 31, 2019, three months ended June 30, 2018 and the six months periods ended June 30, 2019 and 2018, was prepared on a pro forma basis and determined in accordance with Article 11 of Regulation S-X.
CEO QUOTE
Jim Fitterling, chief executive officer, commented on the quarter:
“In spite of challenging market conditions, our results reflect the benefits of Dow’s streamlined and more focused portfolio, continued cost synergy savings and stranded cost removal. In the quarter, we faced margin compression in our intermediate products in both our core business and equity earnings. However, we achieved demand growth in packaging applications, supported by new capacity on the U.S. Gulf Coast. We delivered more than $175 million of savings from cost synergies and stranded cost removal. We also moved quickly to further tighten our expense and capital spending in response to the macro environment. We delivered higher cash flow from operations. And on a sequential basis, after adjusting for higher planned maintenance spending, the Dow team achieved core earnings growth. This result underscores our discipline and focus on agile operational and financial management.”
SEGMENT HIGHLIGHTS
Performance Materials & Coatings
| Three Months Ended June 30 | Three Months Ended March 31 | ||||
|---|---|---|---|---|---|
| In millions, except per share amounts | 2Q19 | 2Q18 | vs. SQLY [B / (W)] | 1Q19 | vs. PQ [B / (W)] |
| Net Sales | $2,356 | $2,673 | $(317) | $2,320 | $36 |
| Operating EBIT | $214 | $292 | $(78) | $271 | $(57) |
| Op. EBIT Margin | 9.1% | 10.9% | (180) bps | 11.7% | (260) bps |
| Equity Earnings | $1 | $1 | $0 | $0 | $1 |
Performance Materials & Coatings net sales were $2.4 billion, down 12% versus pro forma results in the year-ago period. Volume and local price each declined 5%. Currency decreased net sales by 2%.
Consumer Solutions net sales declined as gains in the U.S. & Canada were more than offset by declines in all other regions. Local price declines were driven by ongoing siloxane price pressures, primarily in Asia Pacific. Volume decreased modestly, reflecting slower demand, particularly in automotive and consumer electronics end-markets.
Coatings & Performance Monomers net sales declined, driven primarily by lower volume and local price. Coatings demand was impacted by wet weather in the United States and Europe, which led to delays in seasonal demand. Performance Monomers sales were impacted by shipping restrictions from a facility in Deer Park, Texas, due to ongoing repairs at a nearby third-party storage and terminal facility.
Operating EBIT for the segment was $214 million, down 27% versus pro forma results in the year-ago period, primarily due to margin compression in siloxanes as well as higher planned turnaround costs and the shipping restrictions in the Performance Monomers business.
Industrial Intermediates & Infrastructure
| Three Months Ended June 30 | Three Months Ended March 31 | ||||
|---|---|---|---|---|---|
| In millions, except per share amounts | 2Q19 | 2Q18 | vs. SQLY [B / (W)] | 1Q19 | vs. PQ [B / (W)] |
| Net Sales | $3,342 | $3,972 | $(630) | $3,489 | $(147) |
| Operating EBIT | $154 | $502 | $(348) | $277 | $(123) |
| Op. EBIT Margin | 4.6% | 12.6% | (800) bps | 7.9% | (330) bps |
| Equity Earnings | $(78) | $96 | $(174) | $(48) | $(30) |
Industrial Intermediates & Infrastructure net sales were $3.3 billion, down 16% versus pro forma results in the year-ago period. Volume declined 1%, local price decreased 12% and currency decreased net sales by 3%.
Polyurethanes & Construction Chemicals reported a net sales decline, primarily driven by lower isocyanate prices, as well as currency headwinds in EMEAI. Volume gains in isocyanates and systems applications were offset by declines in polyols and propylene oxide/propylene glycol.
Industrial Solutions reported lower net sales, led by a decline in local price. Volume growth in Asia Pacific and Latin America was more than offset by declines in the U.S. & Canada and EMEAI, primarily driven by soft demand in agriculture, automotive and electronics end-markets.
Equity losses for the segment were $78 million, down from pro forma equity earnings of $96 million in the year-ago period, primarily due to margin compression in MEG and polyethylene at the Kuwait joint ventures and in isocyanates at the Sadara joint venture.
Operating EBIT was $154 million, down 69% versus pro forma results in the year-ago period, primarily due to local pricing declines, margin compression in isocyanates, volume declines and equity losses.
Packaging & Specialty Plastics
| Three Months Ended June 30 | Three Months Ended March 31 | ||||
|---|---|---|---|---|---|
| In millions, except per share amounts | 2Q19 | 2Q18 | vs. SQL [B / (W)] | 1Q19 | vs. PQ [B / (W)] |
| Net Sales | $5,205 | $6,134 | $(929) | $5,138 | $67 |
| Operating EBIT | $768 | $926 | $(158) | $690 | $78 |
| Op. EBIT Margin | 14.8% | 15.1% | (30) bps | 13.4% | 140 bps |
| Equity Earnings | $74 | $108 | $(34) | $38 | $36 |
Packaging & Specialty Plastics net sales were $5.2 billion, down 15% versus pro forma results in the year-ago period. Volume declined 4%, driven primarily by feedstock selection in the United States and Europe and a planned maintenance turnaround at an ethylene production facility in Germany, both of which reduced net sales of Hydrocarbons & Energy co-products. Local price declined 9%, and currency decreased net sales 2%.
Packaging and Specialty Plastics business net sales declined due to reduced polyethylene product prices and currency headwinds. Volume grew, led by double-digit gains in Asia Pacific and demand growth in EMEAI, supported by new capacity additions. The business reported the strongest end-market growth in industrial and consumer packaging and health and hygiene applications.
Hydrocarbons & Energy net sales declined on both price and volume. Sales volume declined primarily due to increased ethylene integration from the startup of new downstream assets, as well as a lighter feedstock slate in the United States and Europe and a planned maintenance turnaround at an ethylene production facility in Germany, both of which led to reduced hydrocarbon co-product production.
Equity earnings for the segment were $74 million, down 31% versus pro forma results in the year-ago period. The decline was driven by lower earnings from the Kuwait joint ventures.
Operating EBIT was $768 million, down 17% versus pro forma results in the year-ago period. The benefits from increased supply from growth projects and cost synergy savings were more than offset by margin compression across polyethylene products and reduced equity earnings.
OUTLOOK
“Looking ahead, we still see global growth, but the pace of that expansion has slowed, as buying patterns remain cautious due to ongoing trade and geopolitical uncertainties,” said Fitterling. “In this environment, we will maintain cost and operating discipline by continuing cost synergy and stranded cost removal actions, by reducing our planned capital expenditures for the year from $2.5 billion to $2 billion, without sacrificing high-return growth projects, and by continuing with disciplined margin management. These near-term steps are responsive to the current market environment.
“Over the longer-term, our purpose-built portfolio and leading business positions, combined with a leaner cost structure and a suite of incremental, high-return growth investments, will continue to differentiate Dow and drive our earnings growth trajectory.”
Conference Call
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 8:00 a.m. ET. The webcast and slide presentation that accompanies the conference call will be posted on the Dow Investor Relations events and presentations page of www.dow.com.
About Dow
Dow (NYSE: DOW) combines one of the broadest technology sets in the industry with asset integration, focused innovation and global scale to achieve profitable growth and become the most innovative, customer centric, inclusive and sustainable materials science company. Dow’s portfolio of performance materials, industrial intermediates and plastics businesses delivers a broad range of differentiated science-based products and solutions for our customers in highgrowth segments, such as packaging, infrastructure and consumer care. Dow operates 113 manufacturing sites in 31 countries and employs approximately 37,000 people. Dow delivered pro forma sales of approximately $50 billion in 2018. References to Dow or the Company mean Dow Inc. and its subsidiaries. For more information, please visit www.dow.com or follow @DowNewsroom on Twitter.