January 26, 2006
Fourth Quarter of 2005 Highlights
- Sales for the fourth
quarter set a new Company record, rising 9 percent from the
same period last year to $11.9 billion.
- Earnings per share were
$1.12, up from $1.06 per share a year ago. These amounts
include unusual items in both periods which had net
favorable impacts of $0.10 per share in the current quarter
and $0.21 per share in 2004. Excluding unusual items in both
periods, earnings per share for the fourth quarter increased
20 percent from $0.85 per share in 2004 to $1.02 per share
in 2005.
- Strong cash flow allowed a
further reduction in net debt(1) of more than
$800 million during the fourth quarter of 2005, lowering the
Company's net debt to capital ratio to 29 percent - down
from 41 percent at the end of the same period in 2004.
2005 Highlights
- 2005 sales climbed 15
percent compared with 2004, setting a new record for the
Company of $46.3 billion.
- Despite feedstock and
energy cost increases of $4 billion in 2005 compared with
2004, Dow achieved record earnings of $4.62 per share, up
from $2.93 per share a year earlier. These amounts include
unusual items in both periods which had net favorable
impacts of $0.25 per share in 2005 and $0.22 per share in
2004. Excluding unusual items, earnings per share were $4.37
in 2005, 61 percent higher than $2.71 per share in 2004.
Comment
Andrew N. Liveris,
Dow's president, chief
executive officer and chairman-elect, stated:
"This was a tremendous quarter at the end of an outstanding year
for Dow. In 2005, we realized record sales; we achieved record
earnings; we reduced net debt by more than $2.5 billion; and for
the third year in a row, with institutionalized financial
discipline and operational excellence, we recovered lost margin.
The fact that we did so in the face of high and volatile
feedstock and energy costs bears testimony to the quality of our
people and the strength and consistency of our strategy."
3 Months Ended 12 Months Ended
December 31 December 31
(In millions, except for 2005 2004 2005 2004
per share amounts)
Net Sales $ 11,917 $ 10,936 $ 46,307 $ 40,161
Net Income $ 1,096 $ 1,026 $ 4,515 $ 2,797
Earnings per
Common Share $ 1.12 $ 1.06 $ 4.62 $ 2.93
Review of Fourth Quarter
Results
The Dow Chemical Company (NYSE:
DOW) reported record sales of $11.9 billion for the fourth
quarter of 2005, a 9 percent increase compared with the same
period in 2004. Price rose 10 percent, with strong gains in all
operating segments, except for Agricultural Sciences, and in
most geographic areas. Volume fell marginally against a very
strong fourth quarter in 2004 due in part to the lingering
effects of hurricanes Rita and Katrina in the United States.
Net income for the quarter climbed
7 percent to $1,096 million and earnings per share were $1.12,
up from $1.06 in the same period last year. Excluding unusual
items in both periods, earnings per share for the fourth quarter
increased 20 percent from $0.85 per share in 2004 to $1.02 per
share in 2005.
Net income for the fourth quarter
included a net after-tax gain of $103 million, or $0.10 per
share. This comprised a pretax gain of $637 million on the sale
by Union Carbide Corporation of its 50 percent interest in UOP
LLC, pretax charges of $114 million for restructuring activities
related to plant closures and asset sales, a $100 million cash
donation to The Dow Chemical Company Foundation, the impact of
an unfavorable tax ruling of $137 million, and an after-tax
accrual of $20 million for asset retirement obligations required
under FIN 47. Earnings in the fourth quarter of 2004 included
tax valuation adjustments and an after-tax gain from the sale of
the DERAKANE resins business, totaling $0.21 per share.
Once again in the fourth
quarter, the Company maintained a sharp focus on financial
discipline. Net debt was reduced by more than $800 million
during the quarter, cutting Dow's net debt to capital ratio to
just 29 percent by year-end, 12 percentage points lower than at
the end of 2004. The Company's gross debt to total capital ratio
finished the year at 39 percent, down from 48 percent a year
ago. Capital spending was held below $1.6 billion, significantly
less than the rate of depreciation, without compromising the
safety or the integrity of the Company's manufacturing
facilities. And Selling, Administrative and Research and
Development ("SARD") expenses as a percent of sales dropped to
5.7 percent for the fourth quarter, down from 5.9 percent in the
same period in 2004.
"This was a tremendous quarter at
the end of an outstanding year for Dow," said Andrew N. Liveris,
Dow's president, chief executive officer and chairman-elect. "In
2005, we realized record sales; we achieved record earnings; we
reduced net debt by more than $2.5 billion; and for the third
year in a row, with institutionalized financial discipline and
operational excellence, we recovered lost margin. The fact that
we did so in the face of high and volatile feedstock and energy
costs bears testimony to the quality of our people and the
strength and consistency of our strategy.
"Our commitment to maintaining a
diversified business portfolio allowed our Performance
businesses to report exceptional earnings growth compared with
2004, outpacing strong gains in our Basics businesses and
accounting for more than 50 percent of Dow's profits in 2005.
Financial discipline also played a strong part in a successful
2005, helping reduce our net debt to capital ratio to below 30
percent and cutting SARD to a new low of 5.7 percent of sales
for the year, down from 6.1 percent in 2004. And our drive to
grow the Company through strategic joint ventures contributed
substantially to Dow's financial performance in 2005, with our
nonconsolidated affiliates adding almost a billion dollars in
earnings during the year."
In the Performance Plastics
segment, sales for the fourth quarter were $2.9 billion, an
increase of 12 percent compared with the same period in 2004.
Price was up 10 percent while volume climbed 2 percent,
bolstered in part by the successful integration of ENGAGE™,
NORDEL™ and TYRIN™ elastomers, businesses acquired by the
Company in connection with the dissolution of the DuPont Dow
Elastomers joint venture. Dow Automotive had an excellent
quarter, increasing price and volume globally and underscoring
the value of the Company's geographic balance, as strength in
Latin America and Asia Pacific more than offset dampened demand
in North America and Europe. Epoxy Products and Intermediates
also had a healthy quarter, particularly in Asia Pacific where
demand for electrical laminates in flat panel television
displays mitigated softer volumes in other geographic areas. And
Building and Construction reported solid sales growth, capturing
an increased share of U.S. demand for insulation and weather
barrier products. Fourth quarter EBIT(2) for the
Performance Plastics segment was $973 million, including a gain
of $637 million related to the UOP sale, partly offset by
restructuring charges totaling $28 million. Excluding this net
gain and the gain on the sale of the DERAKANE resins business in
2004, EBIT was $364 million, an increase of 39 percent compared
with $261 million in the same quarter last year.
Sales in Performance
Chemicals rose to $1.9 billion for the fourth quarter of 2005,
an increase of 7 percent compared with $1.8 billion posted in
the same period last year. This improvement was driven by an 8
percent increase in price, while volume was down 1 percent from
the robust levels of a year ago. Dow Latex had a strong quarter
with Emulsion Polymers reporting good volume growth, driven by
healthy demand from the coated paper industry in Europe and the
successful start-up of the Company's second styrene-butadiene
latex line at Zhangjiagang, China. Specialty Polymers reported
an increase in volume compared with the fourth quarter of 2004,
with particular strength in pharmaceuticals, personal care and
water treatment applications. During the quarter the business
also began production at its expanded FILMTEC™ membrane
manufacturing facility in Minneapolis, U.S.A., to meet growing
demand from the water treatment industry. Performance Chemicals
reported EBIT of $177 million for the fourth quarter, which
included restructuring charges totaling $14 million. Excluding
these charges, EBIT was $191 million, an increase of 4 percent
compared with $183 million in the same period last year.
The
Agricultural Sciences segment posted quarterly sales of $729
million, 4 percent lower than the $758 million achieved in the
fourth quarter of 2004. Plant Genetics and Biotechnology
benefited from a marked improvement in the North American seeds
and traits business, led by strong demand for HERCULEX™ I insect
protection and NEXERA™ seed for NATREON™ canola oil. In
Agricultural Chemicals, although sales benefited from solid
demand for cereal herbicide mixtures and for a renewed product
line of herbicides for range and pasture, overall volume was
down as the business exited a number of low margin products in
its on-going effort to focus resources on more profitable
proprietary molecules. Fourth quarter EBIT for Agricultural
Sciences was $74 million, which included restructuring charges
totaling $9 million. Excluding these charges, EBIT was $83
million, double the $41 million reported in the same period a
year ago.
The Plastics segment had a
solid fourth quarter, with sales climbing 9 percent from $2.9
billion in 2004 to $3.1 billion in 2005. Price increased 10
percent compared with the same period last year, while volume
was marginally lower. Polyethylene volume was down from a very
strong fourth quarter in 2004, principally the result of
constrained ethylene supply on the U.S. Gulf Coast caused by the
hurricanes. Polyethylene volume in all other regions continued
to be solid, with particular strength in Asia Pacific. The
Polystyrene business reported a healthy increase in volume
compared with the same period last year, with solid demand in
Asia Pacific and in Europe. Polystyrene continued to recover
margin as increased volume and lower benzene costs more than
offset lower prices. Fourth quarter EBIT for the Plastics
segment of $610 million included restructuring charges totaling
$12 million. Excluding these charges, EBIT for the quarter was
$622 million, 5 percent higher than the $591 million posted for
the same period in 2004.
Fourth quarter sales in the
Chemicals segment increased slightly in 2005 compared with a
year ago, rising 4 percent to $1.5 billion. Price was up 13
percent, while volume was down 9 percent. Much of this reduction
was attributed to the Ethylene Glycol business, which reported a
significant reduction in U.S. sales due to the limited
availability of ethylene caused by the hurricanes. In addition,
revenues in the fourth quarter of 2004 included sales of
ethylene glycol sold by Dow into Asia Pacific; these sales now
flow through the MEGlobal joint venture. The Chlor-Vinyl
business reported a significant increase in price compared with
the same period last year, essentially covering escalating
natural gas prices in the United States. Chlor-Vinyl volume was
down slightly, with increased demand in Europe and Latin America
not quite offsetting lower volumes in North America and Asia
Pacific. The Chemicals segment reported EBIT for the fourth
quarter of $269 million, including a $3 million restructuring
charge. Excluding this charge, EBIT of $272 million was 34
percent lower than $411 million for the same period a year ago.
Review of Results for 2005
Dow reported a new annual sales
record of $46.3 billion in 2005, 15 percent higher than last
year's previous record of $40.2 billion. Price rose 17 percent,
with substantial increases in all operating segments and all
geographic areas. Volume declined 2 percent from last year's
strong levels, in large part because customers reduced the
inventories that they had built during 2004, but also due to the
disruption caused by two major hurricanes, which temporarily
reduced demand in the United States.
Net income was $4.5 billion, an
increase of 61 percent compared with $2.8 billion in 2004.
Earnings per share were $4.62, including gains related to the
sale of UOP, the sale of a 2.5 percent interest in the EQUATE
joint venture and a tax benefit associated with the repatriation
of foreign earnings under the American Jobs Creation Act of
2004, partially offset by various restructuring charges, a cash
donation to The Dow Chemical Company Foundation, a loss on the
early retirement of debt, the impact of an unfavorable tax
ruling and an accrual for asset retirement obligations required
under FIN 47. In 2004, the Company reported earnings per share
of $2.93, including tax valuation adjustments, the gain from the
sale of the DERAKANE resins business and the net favorable
impact of restructuring. Excluding unusual items in both
periods, earnings per share were $4.37 in 2005, an increase of
61 percent compared with $2.71 in 2004.
Commenting on the Company's
outlook, Liveris said: "Our outlook for 2006 is positive, both
for the chemical industry and for our company, despite the
uncertainty and volatility in feedstock and energy costs. We
expect that worldwide demand for chemical and plastic products
will continue to grow, led by Asia Pacific, Latin America and
other emerging geographies, with solid contributions from North
America and Europe. We will continue to focus on the
implementation of our strategy, retaining our financial
discipline and controlling the things we can control. As we have
been saying for some time, we believe that 2006 will be an even
better year for Dow than 2005."
(1) Net debt
equals total debt ("Notes payable" plus "Long-term debt due
within one year" plus "Long-Term Debt") minus "Cash and cash
equivalents" and "Marketable securities and interest-bearing
deposits."
(2) Earnings before interest,
income taxes and minority interests ("EBIT"). A reconciliation
of EBIT to "Net Income Available for Common Stockholders" is
provided following the Operating Segments and Geographic Areas
table.
™ ENGAGE,
NORDEL, TYRIN and FILMTEC are Trademarks of The Dow Chemical
Company or an affiliate of the Company.
™ HERCULEX, NEXERA and NATREON
are Trademarks of Dow AgroSciences LLC
About Dow
Dow is a diversified chemical
company that harnesses the power of science and technology to
improve living daily. The Company offers a broad range of
innovative products and services to customers in more than 175
countries, helping them to provide everything from fresh water,
food and pharmaceuticals to paints, packaging and personal care
products. Built on a commitment to its principles of
sustainability, Dow has annual sales of $46 billion and employs
42,000 people worldwide. References to "Dow" or the "Company"
mean The Dow Chemical Company and its consolidated subsidiaries
unless otherwise expressly noted.
Full report at
http://www.dow.com/financial/reports/05q4earn.htm |
