Fourth Quarter 2016 Highlights
* Dow reported a loss of US$0.03 per share, or operating earnings per share of US$0.99. This compares with earnings per share of US$2.94 in the year-ago period, or operating earnings per share of US$0.93. Operating earnings per share grew 6% 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 US$13.0 billion, up 14% versus the year-ago period driven by volume growth, including the acquisition of Dow Corning’s silicones business, while maintaining prices. Sales rose 3% excluding the silicones acquisition, with increases in all operating segments except Infrastructure Solutions.
* Volume grew 3% 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%), Agricultural Sciences (up 5%) and Performance Plastics (up 4%), all also excluding the impact of acquisitions.
* Operating EBITDA rose 10% versus the year-ago period to US$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 US$60 million in the quarter, bringing the full-year contribution to US$313 million, exceeding the 2016 target.
* Dow delivered US$1.9 billion of cash flow from operations, which compares with US$2.3 billion in the year-ago period. The year-over-year comparison was unfavorably impacted by more than US$750 million of non-operational items. Excluding these items, cash flow from operations increased more than US$300 million. The Company returned more than US$1 billion to shareholders in the quarter through paid dividends (US$510 million) and share repurchases (US$500 million).
* The Company converted all of its Series A Convertible Perpetual Preferred Stock into Common Stock, eliminating the US$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 US$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% completion.
Comment
Andrew N. 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 US$1.9 billion in the quarter. And this year we returned nearly US$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 US$3.52, or operating earnings per share of US$3.72. This compares with earnings per share of US$6.15 in the prior year, or operating earnings per share of US$3.47.
* Sales were US$48.2 billion, down 1% versus the prior year.
* Volume grew 5% on a reported basis and 4% 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%); Europe, Middle East, Africa and India (EMEAI) (up 4%); North America (up 3%); and Latin America (flat). Regional highlights included Greater China (up 11%), Europe (up 5%) and the United States (up 4%).
* EBITDA was US$8 billion. Operating EBITDA was US$9.8 billion, up US$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%. Operating EBITDA margin expanded nearly 70 basis points to 20%, 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 US$5.5 billion of cash flow from operations in the year, which compares with US$7.5 billion in the prior year. The year-over-year comparison was unfavorably impacted by more than US$2 billion of non-operational items. Excluding these items, cash flow from operations increased more than US$200 million.
* Dow's annual dividend reached a historic high of US$1.84 per share, and the Company returned nearly US$3 billion to shareholders through paid dividends (US$2.0 billion) and share repurchases (US$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% 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 US$100 million to US$500 million. The transaction was immediately accretive to earnings per share and is expected to contribute greater than US$1 billion of EBITDA at full run-rate. At year-end, Dow had already reached an annual cost synergy run-rate of more than US$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 US$3 billion in cost synergies and accelerating the timeline for the intended spins.
Three Months Ended
In millions, except per share amounts Dec 31, Dec 31,
2016 2015
_________________________________________________________________
Net Sales US$13,020 US$11,462
Adjusted Sales US$11,749 US$11,462
Net Income (Loss) Available for Common Stockholders US$(33) US$3,527
Net Income Available for Common Stockholders, US$1,121 US$1,057
Excluding Certain Items
Earnings (Loss) per Common Share – Diluted US$(0.03) US$2.94
Operating Earnings per Share US$0.99 US$0.93
___________________________________________________________________________
Twelve Months Ended
In millions, except per share amounts Dec 31, Dec 31,
2016 2015
_________________________________________________________________
Net Sales US$48,158 US$48,778
Adjusted Sales US$45,108 US$46,672
Net Income Available for Common Stockholders US$3,978 US$7,345
Net Income Available for Common Stockholders, US$4,221 US$4,054
Excluding Certain Items
Earnings per Common Share – Diluted US$3.52 US$6.15
Operating Earnings per Share US$3.72 US$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% and annual EBITDA growth of 7%. 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.”
