Dow Chemical : Reports Fourth Quarter and Full-Year Results 2016

Dow Reports Fourth Quarter and Full-Year Results

• 4Q Loss Per Share of $0.03; Operating Earnings Per Share of $0.99, up 6%
• 4Q Sales Climb to $13B, up 14% with Gains in all Operating Segments
• 4Q EBITDA of $783MM; Operating EBITDA Rises 10% to $2.6B
• Full-Year Earnings Per Share of $3.52; Operating Earnings Per Share Increases 7% to $3.72
• Full-Year EBITDA of $8B; Operating EBITDA Grows $212 Million to $9.8B
• Nearly $3B Returned to Shareholders through Paid Dividends and Share Repurchases in 2016

Fourth Quarter 2016 Highlights

• Dow reported a loss of $0.03 per share, or operating earnings per share of $0.99. This compares with earnings per share of $2.94 in the year-ago period, or operating earnings per share of $0.93. Operating earnings per share grew 6 percent versus the year-ago period.
  GAAP results in the quarter were impacted by Certain Items, primarily due to a voluntary change in accounting policy for asbestos-related matters and charges for legacy environmental remediation activities. Results in the year-ago period were impacted by Certain Items mostly related to gains on portfolio management actions.
• Sales were $13.0 billion, up 14 percent versus the year-ago period driven by volume growth, including the acquisition of Dow Corning's silicones business, while maintaining prices. Sales rose 3 percent excluding the silicones acquisition, with increases in all operating segments except Infrastructure Solutions.
• Volume grew 3 percent excluding the impact of acquisitions, with gains in all geographic areas, except Latin America. These gains were driven by Dow's continued portfolio shift toward growing consumer end-markets, led by Consumer Solutions (up 7 percent), Agricultural Sciences (up 5 percent) and Performance Plastics (up 4 percent), all also excluding the impact of acquisitions.
• Operating EBITDA rose 10 percent versus the year-ago period to $2.6 billion, driven by the contribution of Dow Corning's silicones businesses; increased seed sales; and demand for Dow's differentiated products, particularly in infrastructure, transportation, electronics and consumer care. These gains more than offset higher feedstock and energy costs and the impact of planned turnaround activity.
• Productivity and cost cutting savings totaled $60 million in the quarter, bringing the full-year contribution to $313 million, exceeding the 2016 target.
• Dow delivered $1.9 billion of cash flow from operations, which compares with $2.3 billion in the year-ago period. The year-over-year comparison was unfavorably impacted by more than $750 million of non-operational items. Excluding these items, cash flow from operations increased more than $300 million. The Company returned more than $1 billion to shareholders in the quarter through paid dividends ($510 million) and share repurchases ($500 million).
• The Company converted all of its Series A Convertible Perpetual Preferred Stock into Common Stock, eliminating the $340 million annual preferred dividend payment and further enhancing Dow's capital structure.
• The Company's strategic investments for growth achieved several milestones. Dow made significant progress on: its planned merger with DuPont; the integration of Dow Corning's silicones businesses, which reached an annual cost synergy run-rate of greater than $360 million; Sadara, which completed the construction phase of all 26 units at its world-scale complex; expansions of an ethylene facility in Louisiana and a polyethylene facility in Texas; and construction activities at its new ethylene facility in Texas, which reached more than 90 percent completion.

Comment

Andrew Liveris, Dow's chairman and chief executive officer, stated:

'This was another strong quarter for our company, extending our streak of year-over-year earnings and volume growth - reaching 17 consecutive quarters of increases in operating EPS and 13 consecutive quarters of volume growth. We delivered record quarterly and full-year operating EBITDA and generated strong cash flow from operations of $1.9 billion in the quarter. And this year we returned nearly $3 billion to our owners through share repurchases and the highest annual dividend in our history.

'Operationally, we showcased the power and resilience of our consumer-driven business model throughout the year, no matter what economic volatility occurred. By capitalizing on our market focus and innovation launches, we delivered full-year operating EBITDA records in multiple downstream businesses, including Automotive Systems, Building & Construction, Electronic Materials and Dow AgroSciences.

'Strategically, we advanced our growth investments. Sadara completed construction of its world-scale site, celebrated startups of its largest units and began ramping production of its 26 operating units. On the U.S. Gulf Coast, we completed capacity expansions in Louisiana and Texas. And we accelerated the integration of Dow Corning silicones, surpassing all of our value and synergy capture targets and capitalizing on the business's natural fit within Dow's portfolio.

'Simply put, the Dow team continues to deliver a consistent track record of executing against our priorities, proving time and again the resilience and agility of our focused business model, which performs under all economic conditions.'

2016 Full-Year Highlights

• Dow reported full-year earnings per share of $3.52, or operating earnings per share of $3.72. This compares with earnings per share of $6.15 in the prior year, or operating earnings per share of $3.47.
• Sales were $48.2 billion, down 1 percent versus the prior year.
• Volume grew 5 percent on a reported basis and 4 percent excluding the impact of divestitures and acquisitions. This result reflected broad-based, consumer-driven demand, with gains across nearly all geographic areas - Asia Pacific (up 6 percent); Europe, Middle East, Africa and India (EMEAI) (up 4 percent); North America (up 3 percent); and Latin America (flat). Regional highlights included Greater China (up 11 percent), Europe (up 5 percent) and the United States (up 4 percent).
• EBITDA was $8 billion. Operating EBITDA was $9.8 billion, up $212 million compared with the prior year, with increases in Consumer Solutions, Infrastructure Solutions and Agricultural Sciences more than offsetting declines in Performance Plastics and Performance Materials & Chemicals.
• EBITDA margin was 17 percent. Operating EBITDA margin expanded nearly 70 basis points to 20 percent, with increases reported in Consumer Solutions, Agricultural Sciences and Infrastructure Solutions, reflecting continued actions that further shifted the business mix toward consumer-driven end-markets, coupled with ongoing productivity savings.
• Dow delivered $5.5 billion of cash flow from operations in the year, which compares with $7.5 billion in the prior year. The year-over-year comparison was unfavorably impacted by more than $2 billion of non-operational items. Excluding these items, cash flow from operations increased more than $200 million.
• Dow's annual dividend reached a historic high of $1.84 per share, and the Company returned nearly $3 billion to shareholders through paid dividends ($2.0 billion) and share repurchases ($916 million) in 2016.
• Dow growth investments reached several milestones in the year. On the U.S. Gulf Coast, the Company completed expansions of a Louisiana ethylene plant and a Texas gas-phase polyethylene facility. Additionally, the Company's new ethylene unit in Texas surpassed 90 percent construction completion. In the Middle East, the Sadara joint venture started up its mixed feed cracker and two additional polyethylene units, and completed construction of all 26 units at the world-scale complex.
• The Company completed the ownership restructure of Dow Corning Corporation's Silicones business on June 1 and increased the total synergy target by $100 million to $500 million. The transaction was immediately accretive to earnings per share and is expected to contribute greater than $1 billion of EBITDA at full run-rate. At year-end, Dow had already reached an annual cost synergy run-rate of more than $360 million.
• Dow made significant progress on its planned merger with DuPont, receiving overwhelming shareholder support for the transaction, announcing DowDuPont's senior leadership team, finalizing plans to achieve the $3 billion in cost synergies and accelerating the timeline for the intended spins.

	Three Months Ended
In millions, except per share amounts	Dec 31, 2016	Dec 31, 2015
Net Sales	$13,020	$11,462
Adjusted Sales	$11,749	$11,462
Net Income (Loss) Available for Common Stockholders	$(33)	$3,527
Net Income Available for Common Stockholders, Excluding Certain Items	$1,121	$1,057
Earnings (Loss) per Common Share - Diluted	$(0.03)	$2.94
Operating Earnings per Share	$0.99	$0.93

	Twelve Months Ended
In millions, except per share amounts	Dec 31, 2016	Dec 31, 2015
Net Sales	$48,158	$48,778
Adjusted Sales	$45,108	$46,672
Net Income Available for Common Stockholders	$3,978	$7,345
Net Income Available for Common Stockholders, Excluding Certain Items	$4,221	$4,054
Earnings per Common Share - Diluted	$3.52	$6.15
Operating Earnings per Share	$3.72	$3.47

Outlook

Commenting on the Company's outlook, Liveris said:

'We are seeing early signs of positive economic momentum, with the United States in expansionary mode, driven by the ongoing strength of the consumer and the tailwind of a new incoming administration promising structural reforms. Europe continues its gradual recovery, despite increasing political uncertainty and geopolitical tensions. China's transition is progressing on a robust path, and sustained growth of Asia's middle class continues to drive demand throughout the region. And finally, we see improvement in Latin America from its low base, with slow but stable gains continuing in Brazil.

'We expect demand for Dow's portfolio to remain healthy, particularly in the businesses that serve packaging, infrastructure, consumer care, electronics, automotive and agriculture. Building on our strong achievements these past several years, we remain well-positioned to capture growth where growth exists around the world. And our strategic investments - Sadara, Dow Corning and the U.S. Gulf Coast projects - will deliver the next layers of integration strength, earnings growth and cash flow generation.

'The portfolio has been positioned such that delivering stable EPS and EBITDA growth has become our mantra. Over the last four years we have delivered annual EPS growth of 18 percent and annual EBITDA growth of 7 percent. For the year ahead, we remain squarely focused on three priorities: achieving our financial and operating plan; closing the DowDuPont transaction and driving quickly toward the intended spins; and capitalizing on our strategic growth projects. We will continue to deliver strong financial performance for our customers and our shareholders.'

Dow will host a live webcast of its fourth quarter and full-year earnings conference call with investors to discuss its results, business outlook and other matters today at 9:00 a.m. ET on www.dow.com.

Operating earnings per share is defined as earnings per share excluding the impact of 'Certain Items.' See Supplemental Information at the end of the release for a description of these items, as well as a reconciliation of 'Operating earnings per common share - diluted' to 'Earnings per common share - diluted.'

EBITDA is defined as earnings (i.e., 'Net Income (Loss)') before interest, income taxes, depreciation and amortization. A reconciliation of EBITDA to 'Net Income (Loss) Available for The Dow Chemical Company Common Stockholders' is provided following the Operating Segments table. Operating EBITDA is defined as EBITDA excluding the impact of 'Certain Items.'

EBITDA margin is defined as EBITDA as a percentage of reported net sales.

Operating EBITDA margin is defined as Operating EBITDA as a percentage of reported net sales.

'Adjusted Sales' is defined as 'Net Sales' adjusted for divestitures and acquisitions.

About Dow

Dow (NYSE: DOW) combines the power of science and technology to passionately innovate what is essential to human progress. The Company is driving innovations that extract value from material, polymer, chemical and biological science to help address many of the world's most challenging problems, such as the need for fresh food, safer and more sustainable transportation, clean water, energy efficiency, more durable infrastructure, and increasing agricultural productivity. Dow's integrated, market-driven portfolio delivers a broad range of technology-based products and solutions to customers in 175 countries and in high-growth sectors such as packaging, infrastructure, transportation, consumer care, electronics, and agriculture. In 2016, Dow had annual sales of $48 billion and employed approximately 56,000 people worldwide. The Company's more than 7,000 product families are manufactured at 189 sites in 34 countries across the globe. References to 'Dow' or the 'Company' mean The Dow Chemical Company and its consolidated subsidiaries unless otherwise expressly noted. More information about Dow can be found at www.dow.com.

Use of non-GAAP measures: Dow's management believes that measures of income excluding certain items ('non-GAAP' measures) provide relevant and meaningful information to investors about the ongoing operating results of the Company. Such measurements are not recognized in accordance with accounting principles generally accepted in the United States of America ('GAAP') and should not be viewed as an alternative to GAAP measures of performance. Reconciliations of non-GAAP measures to GAAP measures are provided in the Supplemental Information tables.

Note: The forward looking statements contained in this document involve risks and uncertainties that may affect Dow's operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission ('SEC'). These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that Dow'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.