The Dow Chemical — Q2 2017 Earnings Presentation
34 slides from The Dow Chemical's earnings presentation, Jul 27, 2017
Slide 1: 2Q 2017 Earnings Conference Call
The Dow Chemical Company 2Q 2017 Earnings Conference Call July 27, 2017 The Dow Chemical Company
Slide 2: SEC Disclosure Rules
SEC Disclosure Rules Some of our comments today include statements about our expectations for the future. Those expectations involve risks and uncertainties. Dow cannot guarantee the accuracy of any forecasts or estimates, and we do not plan to update any forward- looking statements if our expectati
Slide 3: 2Q17 Results – Unparalleled Track Record of Performance
2Q17 Results – Unparalleled Track Record of Performance • 3rd consecutive quarter of all-time record Op. EBITDA – Up 12% YoY, reaching $2.8B • 19th consecutive quarter of YoY Op. EPS growth – Up 14%, rising to $1.08; highest 2Q EPS since 2005 • 15th consecutive quarter of YoY volume growth, ex. M&A
Slide 4: Broad-Based Top-Line Growth in All Segments and Geographies
Broad-Based Top-Line Growth in All Segments and Geographies 2Q Sales Growth by Geography 2Q Sales Growth by Segment 13% 12% 8% 8% 8% 7% 7% 4% 3% LAA NAA APAC EMEAI Ag IS CS Perf. PM&C Plastics Portfolio Shift Continues to Enable Consumer-Driven Demand Capture Data reflects organic growth and exclude
Slide 5: Agenda
Agenda • 2Q Financial Highlights • 2Q Business Highlights • Dow’s Strategic Value Drivers • Business Model Delivers Sustainable Earnings 5
Slide 6: 2Q17: Broad-Based Sales, Op. EBITDA and Op. EPS Growth
2Q17: Broad-Based Sales, Op. EBITDA and Op. EPS Growth Financial Performance Snapshot 2Q16 2Q17 B/(W) Net Sales ($MM) $11,952 $13,834 +$1,882 Price: +5% Sales ex. Acquisitions ($MM) $11,952 $12,964 +$1,012 Volume: +3% Operating EBITDA ($MM) $2,464 $2,759 +$295 Operating EPS ($/share) $0.95 $1.08 +$0
Slide 7: Agenda
Agenda • 2Q Financial Highlights • 2Q Business Highlights • Dow’s Strategic Value Drivers • Business Model Delivers Sustainable Earnings 7
Slide 8: Ag. Sciences: Differentiated Technology Drives Op. EBITDA Increase
Ag. Sciences: Differentiated Technology Drives Op. EBITDA Increase Quarterly Segment Performance Strong Grower Demand for Novel Seeds & Crop Protection Technologies ($MM) 2Q16 2Q17 • Seeds volume rose primarily due to robust demand for $326 POWERCORE® corn seeds in Latin America $1,577 $1,629 • High
Slide 9: Consumer Solutions: Sales and Op. EBITDA Growth in All Businesses
Consumer Solutions: Sales and Op. EBITDA Growth in All Businesses Dow Automotive Systems: 10th Consecutive Qtr. of YoY Op. EBITDA Growth Quarterly Segment Performance • Highest quarterly sales in over five years driven by double-digit ($MM) volume gains in Asia Pacific and Latin America 2Q16 2Q17 •
Slide 10: Infrastructure Solutions: Op. EBITDA Increases, Sales Grow in all Businesses
Infrastructure Solutions: Op. EBITDA Increases, Sales Grow in all Businesses Dow Bldg. & Construction: Volume Gains in Most Geographic Areas Quarterly Segment Performance • Demand growth in acrylics-based construction chemicals and ($MM) 2Q16 2Q17 methyl cellulosics $556 • Decline in Op. EBITDA from
Slide 11: Perf. Materials & Chemicals: Double-digit Op. EBITDA Gains Led by PU
Perf. Materials & Chemicals: Double-digit Op. EBITDA Gains Led by PU Polyurethanes: Robust Demand for Systems; Tight MDI Fundamentals Quarterly Segment Performance • Strong demand for systems, particularly in consumer and ($MM) 2Q16 2Q17 infrastructure applications $2,566 $347 14% • Higher opportuni
Slide 12: Performance Plastics: Price and Volume Growth Offset by Start-Up Costs
Performance Plastics: Price and Volume Growth Offset by Start-Up Costs Dow Packaging and Specialty Plastics: Double-Digit Vol. Growth in EMEAI & APAC Quarterly Segment Performance • Demand growth led by strength in food and specialty packaging ($MM) 2Q16 2Q17 and industrial and consumer packaging en
Slide 13: Agenda
Agenda • 2Q Financial Highlights • 2Q Business Highlights • Dow’s Strategic Value Drivers • Business Model Delivers Sustainable Earnings 13
Slide 14: Dow’s Strategic Value Drivers
Dow’s Strategic Value Drivers Maximize Value Through Market Participation and Targeted Innovation Alignment to Key Value Chains: Leverage Technical Expertise Ethylene, Propylene, Silicones Across Attractive Markets: Cross-Business Synergies; Narrower and Deeper Example: Innovation ENLIST™ Duo Exam
Slide 15: Silicones – Step-Change Performance in Dow vs. Standalone
Silicones – Step-Change Performance in Dow vs. Standalone Historical Performance of Silicones Silicones Platform Performance in Dow [As Stand-Alone1] [Since June 20161] $MM $MM >2,000 6.0 2.0 Revenue: ~$5B 5.0 >$300MM2,3 through 2017E 1.5 2012 – 2015 CAGR: -2% ~1,500 4.0 2017E >$400MM2,3 3.0 through
Slide 16: Silicones Integration Metrics
Silicones Integration Metrics Dow Corning1 Dow (2015) (2015) COGS/Sales 70% 72% 12% (pre-synergies) SG&A/Sales 6% (2Q17 at ~5%) EBITDA/Sales 15% 20% Sales/NAV2 71% 68% EBITDA/NAV2 15% 13% 1. Based on internal management reporting 2. Net Asset Value (NAV) defined as: Gross PP&E + Gross Goodwill & Int
Slide 17: Dow Enables Faster-than-Market Expansion, Profitable Growth
Dow Enables Faster-than-Market Expansion, Profitable Growth New Solutions, Larger Scale, Enhanced Value Chain Participation Leverage Strengths to Expanded Market Narrower & Deeper Focus Grow >2X GDP Opportunity Demand growth thru 2020 driven by: Markets: Transportation, Personal Care, Building & Con
Slide 18: Sadara Advances Additional Units into Operations
Sadara Advances 9 Additional Units into Operations Status of Operations • 25 of 26 production units have advanced into commercial operations • Progressed PO/PG, Polyols, Amines, Glycol Ethers and PDMI • Approximately 0.5 billion pounds of product sold in 2Q • Enabling customer growth, extending Dow’
Slide 19: Imminent Startup of Largest U.S. Gulf Coast Investments
Imminent Startup of Largest U.S. Gulf Coast Investments Near Completion of First Wave Growth Investments • SCO restart: Completed in 2012 • LA-3 debottleneck: Completed 4Q16; 2nd consecutive production record • SEADRIFT: Gas-phase PE debottleneck completed 4Q16 • ELITE™: Startup imminent; earnings c
Slide 20: Depth and Breadth of Integration Enables Competitive Advantage
Depth and Breadth of Integration Enables Competitive Advantage Texas Operations Integration Texas Operations has 65 manufacturing units working together to produce more than 20% of the company’s products sold globally (before TX-9) Dow Texas Operations The Freeport site serves: ~20 different busin
Slide 21: Competitive Advantages from Dow’s Integrated & Leveraged Approach
Competitive Advantages from Dow’s Integrated & Leveraged Approach Advantages enabled by integrated systems, capabilities and processes Procurement ~$520 MM Enhanced buying power and higher economies of scale H&E/Feedstocks Advantage associated with hydrocarbons, energy and feedstock cost ~$500 MM ma
Slide 22: Integration & Innovation to Serve Core Materials Science Markets
Integration & Innovation to Serve Core Materials Science Markets Silicones Adds New-to-World Solutions PROPRIETARY TOOLKIT NEW & DIFFERENTIATED SOLUTIONS FOCUS AREAS FOR NEW CHEMISTRY IN THE TOOLKIT GROWTH WITH DEEP CAPABILITIES IN GROWTH INDUSTRIES Acrylates Flexible, crack-resistant Infrastructure
Slide 23: Upgraded Returns with Investments in Value-Add Innovation
Upgraded Returns with Investments in Value-Add Innovation Innovation Sales and Returns Innovation Advantage Innovation Sales Innovation Margin Premium Sales from Innovation Products <=5 Years old - $B Returns above non-innovative products - bps ~1.9x Increase ~1,000-1,100 $6.9 $8.6 $9.2 $11.1 $12.0
Slide 24: Agenda
Agenda • 2Q Financial Highlights • 2Q Business Highlights • Dow’s Strategic Value Drivers • Business Model Delivers Sustainable Earnings 24
Slide 25: Dow Business Model Delivers Sustainable Earnings
Dow Business Model Delivers Sustainable Earnings Earnings Focus Strategic Metrics Earnings Growth Operating Cash Flow1 Annual Shareholder Returns2 Average Operating EBITDA - $B/year Average Cash Flow - $B Dow S&P 500 S&P Chemicals $6.3 31% $10.6 $5.6 19% 19% $8.6 11% $3.9 7% $6.7 $3.0 $5.1 2001-05 2
Slide 26: Shift to Consumer-Driven Portfolio Drives Earnings Consistency
Shift to Consumer-Driven Portfolio Drives Earnings Consistency Innovation & Integration Shift Earnings Trajectory Significant Reduction in Op. EBITDA Volatility(1) $11 7-Year Avg Operating EBITDA 6.2 $10 $9 4.8 Dow Operating EBITDA ($ billion)1 $8 $7 $6 1.5 1.2 $5 $4 CAGR: 1% $3 2002 - 2006 - 2010 -
Slide 27: Consistent Track Record of Delivering on Financial Priorities
Consistent Track Record of Delivering on Financial Priorities Progress on Key Operating EPS: >2x Increase Operating Cash Flow1: Nearly 2x Financial Metrics (2012-2Q17) $4.25 $4.02 ($B) CAPEX Op. Free Cash Flow2 $10 Thousands $3.50 $8 • Operating EPS CAGR of 18% $6 $6.3 $2.75 $4.1 $2.8 • Operating RO
Slide 28: Slide 28
Slide 29: Appendix
™ Appendix
Slide 30: Market Pulse – 2Q17 Heat Map
Market Pulse – 2Q17 Heat Map 2Q17 Up 3X global GDP or greater Eastern Europe, ME, Flat Demand Growth Western Europe Developing Asia Developed Asia 2Q17 Down Double digit or greater Latin America US & Canada Africa, India Lower Participation Participation (includes Silicones) of ~$1B or more in 2016
Slide 31: 3Q17 Modeling Guidance
3Q17 Modeling Guidance Dow Revenue $13.0-13.5B Corp. Segment EBITDA $(80)-(100)MM Corporate Operational Tax Rate 24-26% D&A $750-800MM Share Count ~1,235MM Net Interest Expense $240-280MM Y-o-Y Dow Op. EBITDA Margin Impact from Sadara: Increase in D&A and Net Interest Expense as USGC 25-50 bps decli
Slide 32: 2Q17 vs. 2Q16 Sales Trends by Business
2Q17 vs. 2Q16 Sales Trends by Business Agricultural Sciences Consumer Solutions1 Infrastructure Solutions1 Sales Price Volume Sales Price Volume Dow Building & Sales Price Volume Construction # $ # Dow Automotive # - # Crop Protection - $ # Systems Energy & Water # $ # Consumer Care # # Solutions Se
Slide 33: Quarterly Preliminary Results for Principal Joint Ventures
Quarterly Preliminary Results for Principal Joint Ventures Principal Joint Ventures1 – Total Dow Proportionate Share Dollars in millions (unaudited) 2Q17 2Q16 Dollars in millions (unaudited) 2Q17 2Q16 Sales $2,940 $2,358 Adjusted Sales2 $738 $634 Adjusted Sales2 $1,885 $1,617 Operating EBITDA3 $240
Slide 34: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Three Months Ended Six Months Ended In millions 6/30/2017 6/30/2016 6/30/2017 6/30/2016 Net Income Available for The Dow Chemical Company Common Stockholders $1,321 $3,123 $2,209 $3,292 + Preferred stock dividends – 85 – 170 + Net income attributable to
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