The Dow Chemical Company First Quarter 2007 Earnings Conference Call
SEC Disclosure Rules Some of our comments today may 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 expectations change. If you would like more information on the risks involved in forward-looking statements, please see our annual report and our SEC filings. In addition, some of our comments may reference non-gaap financial measures. Where available, a reconciliation to the most directly comparable GAAP financial measures and other associated disclosures are provided on the internet at www.dow.com in the Financial Reports page of the Investor Relations section. Slide 2
Agenda 1Q07 Financial Performance -Overview - Business Segment Review Strategy Update -Growth - Asset Light - Innovation - Financial Discipline Outlook Slide 3
1Q07 Financial Highlights Record first quarter sales and solid earnings - Sales up 3% vs. 1Q06 - Volume gains in Europe, Asia Pacific and Latin America more than offset decline in North America - Solid volume growth across most businesses - Joint ventures continue to deliver strong earnings Delivering value to shareholders - Dividend increased by 12% 95-year track record of maintaining or increasing dividends - Share repurchase: 9.3 million in first quarter completed 2005 buy-back, triggered 2006 program Slide 4
1Q07 Financial Performance 1Q07 1Q06 Change Sales $12,432 $12,020 3% Price 2% Volume 1% Dollars in millions (except per share amounts) Purchased feedstock & energy cost (2%) Equity income $274 $168 63% EBIT* $1,439 $1,737 (17%) Earnings per share $1.00 $1.24 (19%) *See Appendix for Reconciliation of Non-GAAP Financial Measure Slide 5
Performance Plastics Dollars in millions 1Q07 1Q06 Sales $3,529 $3,493 Price up 6%; Volume down 5% EBIT $441 $726 Equity earnings (included in EBIT) $26 $21 Specialty Plastics & Elastomers Tech. Licensing & Catalyst Sales Dow Automotive Dow Building Solutions Dow Epoxy Polyurethanes & PU Systems Sales up in most businesses and geographies; strong volume outside North America Significant increases in raw material costs; higher R&D investment for growth Volume and EBIT declined due to lower licensing activity plus weaker housing and autos Dow Automotive Dow Building Solutions Dow Epoxy Polyurethanes and PU Systems Specialty Plastics and Elastomers Technology Licensing and Catalyst Sales Price Volume Slide 6
Performance Chemicals Dollars in millions 1Q07 1Q06 Sales $2,002 $1,886 Price up 3%; Volume up 3% EBIT $312 $301 Equity earnings (included in EBIT) $105 $69 Specialty Chemicals Sales Designed Polymers Dow Latex Solid global demand across Designed Polymers and Specialty Chemicals portfolios Softer Latex industry fundamentals impacted margins Strong results from Dow Corning and OPTIMAL Designed Polymers Dow Latex Specialty Chemicals Sales Price Volume Slide 7
Agricultural Sciences Dollars in millions 1Q07 1Q06 Sales $1,036 $961 Price up 1%; Volume up 7% EBIT $282 $216 Equity earnings (included in EBIT) - - Seeds & Traits Sales Ag Chem Very strong volume in Europe with early planting season Improved credit conditions in Brazil allowed for increased sales Structural cost reductions contributed to improved results Agricultural Chemicals Seeds and Traits Sales Price Volume Slide 8
Basic Plastics Dollars in millions 1Q07 1Q06 Sales $2,894 $2,797 Price up 1%; Volume up 2% EBIT $527 $476 Equity earnings (included in EBIT) $54 $26 Polypropylene Polystyrene Sales Polyethylene Polyethylene volume up in all regions; industry fundamentals remained solid Polystyrene price up in all regions; volume up outside North America Polypropylene volume impacted by Safripol divestiture Polyethylene Polypropylene Polystyrene Sales Price Volume Slide 9
Basic Chemicals Dollars in millions 1Q07 1Q06 Sales $1,271 $1,368 Price up 4%; Volume up 3% EBIT $134 $154 Equity earnings (included in EBIT) $75 $28 EO/EG Sales Core Chemicals VCM and Caustic Soda volume up slightly, but price down significantly in the Americas EO/EG industry fundamentals are sound; volume down due to contract restructuring Solvents & Intermediates reported strong gains for butanol sold into coatings applications Core Chemicals Ethylene Oxide / Ethylene Glycol Sales Price Volume Slide 10
Committed to Transformational Growth Establish more market-facing businesses and expand Performance portfolio Drive Basics for competitive advantage while maintaining power of integration Extend geographic growth Actively manage portfolio Accelerate technology and innovation Continue to drive financial fitness Return value to shareholders Deliver on dampening cyclicality while driving growth Slide 11
Growth Strategy Hyperlast Acquisition Polyurethanes capacity additions: -Polyols - Propylene Glycol -MDI Capacity additions for CELLOSIZE hydroxyethyl cellulose Start-up of plant in Russia to produce SYTROFOAM brand insulation Colorcon distribution agreement TM Trademark of The Dow Chemical Company ( Dow ) or an affiliated company of Dow Slide 12
Asset Light Strategy Heads of Agreement with NOC, Libya - Ras Lanuf upgrade and expansion - Low capital investment - Strategic location and advantaged feedstocks MoU with Chevron Phillips Chemical Company - Polystyrene and Styrene assets in Americas - Launch pad for stronger regional presence - Solid feedstock position Slide 13
Innovation First quarter sales from new products: 33% Launch of Propylene Glycol Renewable Go-ahead for global production of INFUSE olefin block co-polymers R&D Center in India Solar generation building products Methane to chemicals research initiative TM Trademark of The Dow Chemical Company ( Dow ) or an affiliated company of Dow Slide 14
Financial Discipline Capital Spending - $330 million - 2007 target of $2 billion, less than depreciation Shareholder Remuneration - Dividend Increase: 12 percent to $1.68 per share - Dividend maintained or increased for 95 years - Share Repurchase: 9.3 million in First Quarter Portfolio management - Shutdown of Altona polystyrene - Sale of 50 percent share in Chrome International SA Slide 15
Outlook Strong global economy, but weakness in North America will continue to present challenge, especially in auto and housing Expect solid year-over-year volume growth in most businesses Good price momentum should result in sequential price improvement Purchased hydrocarbon feedstock and energy costs are expected to be significantly higher in 2Q07 vs. 2Q06 Higher planned turnaround costs expected in 2Q07 We continue to expect that 2007 will be another good year for Dow Slide 16
Appendix Slide 17
Reconciliation of Non-GAAP Financial Measure Dollars in millions EBIT Three months ended 03/31/07 03/31/06 $1,439 $1,737 + Interest income - Interest expense and amortization of debt discount - Provision for income taxes - Minority interests share in income Net Income Available for Common Shareholders 40 146 335 25 $973 42 156 384 25 $1,214 Slide 18