When Dow Chemical reports it has an effect on the portfolios of more that just those of us who own shares
Why? I have said it before and will again, Dow “makes the stuff that makes stuff”. They have a global footprint and touch almost every industry on the globe with their products. Because of that, they are not only a US, but a global bellweather. So then, what do things look like out there?
Lets Look at volumes, pricing and capacity rates. These are more important than Dow specific P&L (for global conditions) as that is affected by a variety of factors. These metric go straight to demand for Dow products
Dow is seeing increased or steady demand in all regions
With that will come pricing strength
Now that volumes and price are up, we have to see what level Dow is operating at:
Dow is operating at two year high levels. What does this tell us? It means pricing increases are due to organically high volume trends, not a quick surge that is effecting price due to low capacity rates. Think about it, the high demand out there is allowing Dow to rapidly increase production AND raise prices at the same time. That means there is significant demand as any extra production is being quickly absorbed.
FOR SHAREHOLDERS:
Hard to find a problem with these results….
Third Quarter 2010 Highlights
Dow reported earnings of $0.45 per share. The Company delivered earnings of $0.54 per share excluding certain items,(3) compared with earnings of $0.24 per share in the year-ago period excluding certain items and discontinued operations.
EBITDA(2) rose more than $350 million to more than $1.9 billion, the highest level since second quarter of 2008. EBITDA margin at a Company level was 15 percent, with margin in the combined Performance segments again expanding. This was driven by the Performance Products and Performance Systems operating segments, which together delivered an EBITDA increase of 30 percent, and margin expansion of more than 275 basis points.
Reported sales increased 7 percent versus last year. Sales were up 23 percent excluding the impact of divestitures with double-digit gains reported in all geographic areas and in all operating segments.
Sales in emerging geographies increased 19 percent and surpassed $4 billion in the quarter for the first time in the Company’s history, with particular strength in Electronic Materials (up 45 percent) and Health and Agricultural Sciences (up 22 percent).
Volume increased 14 percent, with gains in all geographic areas and all operating segments. The largest increases were reported in Europe, Middle East and Africa (up 16 percent), and North America (up 15 percent). A double-digit volume gain was reported in the combined Performance segments. At the Company level, volume rose 8 percent versus last quarter excluding Health and Agricultural Sciences, with gains in all geographic areas.
Price increased 9 percent year-over-year, with gains in all geographic areas. This increase more than offset a $585 million increase in purchased feedstock and energy costs. While the largest increases were reported in the combined Basics segments, Coatings and Infrastructure and Performance Products reported double-digit price gains.
Dow’s global operating rate was 86 percent, up 6 percentage points from last quarter and representing the highest levels since the first quarter of 2008.
Net debt to total capitalization declined more than 200 basis points to 44 percent, primarily due to $1 billion of cash flow from operating activities and continued debt repayment.
Equity earnings were $251 million, up more than 10 percent from the year-ago period, led by increases in MEGlobal and the Company’s joint ventures in Kuwait. Equity earnings have exceeded $1 billion for the
trailing four-quarter period.The Company continued to exceed its growth synergy targets related to the acquisition of Rohm and Haas, delivering more than $975 million in sales on a run-rate basis, exceeding the year-end target of $500 million.
Comment
Andrew N. Liveris, Dow’s chairman and chief executive officer, stated:
“Dow’s transformed portfolio delivered accelerated earnings growth this quarter, resulting in a two-fold increase over last year. Continued solid demand recovery in North America and Europe — coupled with sustained momentum in emerging geographies, which represented more than $4 billion of our overall sales in the quarter — drove robust revenue gains across all of our operating segments and in every geographic area. Our operating rates reached levels not seen since the first quarter of 2008, reflecting both broad-based demand growth and a return to our signature operational excellence capabilities.
“In particular, our Performance Products and Performance Systems operating segments achieved impressive results, with EBITDA up 30 percent over last year. Notably, the margin for our combined Performance segments has now expanded for five out of the last six quarters. Additionally, our joint ventures have now contributed more than $1 billion in equity earnings over the last 12 months. These results clearly demonstrate our strategy is continuing to deliver and that we have regained our momentum to transform Dow into an earnings growth company.”
Now the shareholder slides. In 2009 the company laid out goals for 2010. We see here they are on track to meet all of them and have already surpassed several of them. The next key point is a dividend increase. I would be surprised if nothing was said about that today.
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