MIDLAND, Mich., April 26 /PRNewswire-FirstCall/ -- The following statement was issued today by The Dow Chemical Company.
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. Comment 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."
3 Months Ended March 31 (In millions, except for per share amounts) 2007 2006 Net Sales $12,432 $12,020 Net Income $973 $1,214 Earnings per Common Share $1.00 $1.24 Review of First Quarter Results
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.
Performance Plastics
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(TM) elastomers and VERSIFY(TM) 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.
Performance Chemicals
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
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
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.
Basic Chemicals
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.
Outlook
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."
Note: The forward-looking statements contained in this document involve risks and uncertainties that may affect the Company's operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the Company's expectations will be realized. The Company assumes no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.
Financial Statements (Note A) The Dow Chemical Company and Subsidiaries Consolidated Statements of Income Three Months Ended March 31, March 31, In millions, except per share amounts (Unaudited) 2007 2006 Net Sales $12,432 $12,020 Cost of sales 10,605 9,803 Research and development expenses 302 278 Selling, general and administrative expenses 418 388 Amortization of intangibles 11 12 Equity in earnings of nonconsolidated affiliates 274 168 Sundry income - net 69 30 Interest income 40 42 Interest expense and amortization of debt discount 146 156 Income before Income Taxes and Minority Interests 1,333 1,623 Provision for income taxes 335 384 Minority interests' share in income 25 25 Net Income Available for Common Stockholders $973 $1,214 Share Data Earnings per common share - basic $1.01 $1.25 Earnings per common share - diluted $1.00 $1.24 Common stock dividends declared per share of common stock $0.375 $0.375 Weighted-average common shares outstanding - basic 963.2 967.9 Weighted-average common shares outstanding - diluted 975.9 980.7 Depreciation $466 $455 Capital Expenditures $330 $291 Notes to the Consolidated Financial Statements: Note A: The unaudited interim consolidated financial statements reflect all adjustments which, in the opinion of management, are considered necessary for a fair presentation of the results for the periods covered. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006. Except as otherwise indicated by the context, the terms "Company" and "Dow" as used herein mean The Dow Chemical Company and its consolidated subsidiaries. The Dow Chemical Company and Subsidiaries Consolidated Balance Sheets March 31, Dec. 31, In millions (Unaudited) 2007 2006 Assets Current Assets Cash and cash equivalents $2,377 $2,757 Marketable securities and interest-bearing deposits 188 153 Accounts and notes receivable: Trade (net of allowance for doubtful receivables - 2007: $117; 2006: $122) 5,668 4,988 Other 3,107 3,060 Inventories 6,106 6,058 Deferred income tax assets - current 378 193 Total current assets 17,824 17,209 Investments Investment in nonconsolidated affiliates 2,800 2,735 Other investments 2,154 2,143 Noncurrent receivables 265 288 Total investments 5,219 5,166 Property Property 44,818 44,381 Less accumulated depreciation 31,174 30,659 Net property 13,644 13,722 Other Assets Goodwill 3,250 3,242 Other intangible assets (net of accumulated amortization - 2007: $644; 2006: $620) 457 457 Deferred income tax assets - noncurrent 3,779 4,006 Asbestos-related insurance receivables - noncurrent 725 725 Deferred charges and other assets 1,132 1,054 Total other assets 9,343 9,484 Total Assets $46,030 $45,581 Liabilities and Stockholders' Equity Current Liabilities Notes payable $307 $219 Long-term debt due within one year 1,367 1,291 Accounts payable: Trade 3,701 3,825 Other 1,701 1,849 Income taxes payable 1,030 569 Deferred income tax liabilities - current 234 251 Dividends payable 361 382 Accrued and other current liabilities 2,204 2,215 Total current liabilities 10,905 10,601 Long-Term Debt 7,975 8,036 Other Noncurrent Liabilities Deferred income tax liabilities - noncurrent 1,000 999 Pension and other postretirement benefits - noncurrent 3,100 3,094 Asbestos-related liabilities - noncurrent 1,063 1,079 Other noncurrent obligations 3,284 3,342 Total other noncurrent liabilities 8,447 8,514 Minority Interest in Subsidiaries 378 365 Preferred Securities of Subsidiaries 1,000 1,000 Stockholders' Equity Common stock 2,453 2,453 Additional paid-in capital 859 830 Retained earnings (includes cumulative effect of adopting FIN No. 48 of $(290)) 17,306 16,987 Accumulated other comprehensive loss (2,088) (2,235) Treasury stock at cost (1,205) (970) Net stockholders' equity 17,325 17,065 Total Liabilities and Stockholders' Equity $46,030 $45,581 See Notes to the Consolidated Financial Statements. The Dow Chemical Company and Subsidiaries Operating Segments Three Months Ended March 31, March 31, In millions (Unaudited) 2007 2006 Sales by operating segment Performance Plastics $3,529 $3,493 Performance Chemicals 2,002 1,886 Agricultural Sciences 1,036 961 Basic Plastics 2,894 2,797 Basic Chemicals 1,271 1,368 Hydrocarbons and Energy 1,612 1,420 Unallocated and Other 88 95 Total $12,432 $12,020 EBIT (1) by operating segment Performance Plastics $441 $726 Performance Chemicals 312 301 Agricultural Sciences 282 216 Basic Plastics 527 476 Basic Chemicals 134 154 Hydrocarbons and Energy - (2) Unallocated and Other (257) (134) Total $1,439 $1,737 Equity in earnings (losses) of nonconsolidated affiliates by operating segment (included in EBIT) Performance Plastics $26 $21 Performance Chemicals 105 69 Basic Plastics 54 26 Basic Chemicals 75 28 Hydrocarbons and Energy 15 22 Unallocated and Other (1) 2 Total $274 $168 (1) The Company uses EBIT (which Dow defines as earnings before interest, income taxes and minority interests) as its measure of profit/loss for segment reporting purposes. EBIT includes all operating items related to the businesses and excludes items that principally apply to the Company as a whole. A reconciliation of EBIT to "Net Income Available for Common Stockholders" is provided below: Three Months Ended March 31, March 31, 2007 2006 EBIT $1,439 $1,737 + Interest income 40 42 - Interest expense and amortization of debt discount 146 156 - Provision for income taxes 335 384 - Minority interests' share in income 25 25 Net Income Available for Common Stockholders $973 $1,214 Sales Volume and Price by Operating Segment Three Months Ended March 31, 2007 Percentage change from prior year Volume Price Total Operating segments Performance Plastics (5)% 6% 1% Performance Chemicals 3% 3% 6% Agricultural Sciences 7% 1% 8% Basic Plastics 2% 1% 3% Basic Chemicals (3)% (4)% (7)% Hydrocarbons and Energy 8% 6% 14% Total 1% 2% 3% The Dow Chemical Company and Subsidiaries Sales by Geographic Area Three Months Ended March 31, March 31, In millions (Unaudited) 2007 2006 Sales by geographic area United States $4,109 $4,735 Europe 5,013 4,247 Rest of World 3,310 3,038 Total $12,432 $12,020 Sales Volume and Price by Geographic Area Three Months Ended March 31, 2007 Percentage change from prior year Volume Price Total Geographic areas United States (7)% (6)% (13)% Europe 7% 11% 18% Rest of World 6% 3% 9% Total 1% 2% 3%
The Dow Chemical Company
