Dow Chemical Navigates Rough Markets in 2012, Sees Advantages Ahead with Agriculture, Ethylene Products

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading chemicals producer The Dow Chemical Company (NYSE:DOW) (Midland, Michigan) endured difficult markets in fourth-quarter and full-year 2012 as sales declined in all geographic areas and all but one operating segment during the year, with Western Europe taking the biggest toll. Planned restructuring also had a major impact, including the announced shutdowns of almost 30 facilities. The company reported a net loss of $716 million for the quarter, compared with a net loss of $20 million in fourth-quarter 2011. For the year, Dow saw net income of $842 million, compared with $2.4 billion in 2011.

Total sales stood at $13.92 billion for the quarter, a 1.28% decrease from the same period in the previous year, and $56.79 billion for the year, a 5.33% decrease from 2011. The steepest drops in sales were in the Performance Materials segment and the Feedstocks and Energy segment, with the latter reporting lower sales of olefins and vinyl chloride monomers, as well as fewer contract sales following the divestiture of the company's polypropylene business. Volumes declined overall, despite growth in the Asia Pacific region; North American volumes were flat, attributed to shutdowns in the Feedstocks and Energy segment, although demand improved in the region.

The standout segment for Dow was Agricultural Sciences, which was the only one to see annual increases in sales and earnings before interest, income taxes, depreciation and amortization (EBITDA), but hit both annual and quarterly records for sales and EBITDA. The segment benefited from an improving agricultural market and continuing customer adoption of new products. In particular, sales grew 10% in the crop protection business and 44% in the Seeds, Traits and Oils business, with the latter showing strong gains in the Americas. Dow executives also cited the segment's technology pipeline.

Capital expenditures totaled about $1.01 billion during the quarter, slightly down from $1.07 billion in fourth-quarter 2011, and $2.61 billion for the year, compared with $2.69 billion in 2011. During the fourth quarter, Dow incurred a pretax charge of $220 million for a goodwill impairment loss related to its formulated systems business.

Industrial Info is tracking more than $9.3 billion in projects involving Dow, including the planned, $185 million expansion of an ethylene unit at a plant in Fort Saskatchewan, Alberta. The project seeks to expand the 2.4 billion-pound-per-year unit through multiple upgrades and modifications, including new cooling towers and furnaces. Dow hopes to use an improved facility to take advantage of the increased availability of shale gas ethane feedstock.

"There were two key drivers [for the year]: On the downside, price, which declined a staggering $2.1 billion for the year, with most of the impact taking place from mid-year onwards," said Andrew Liveris, the chairman and chief executive officer of Dow, in a conference call. "Currency accounted for nearly two-thirds of this decline. In addition, the entire industry experienced significant naphtha-based margin contraction in both Europe and Asia."

He added, "On the upside, our strengthening feedstock advantage in the Americas, which includes Canada, Argentina, and the U.S., along with healthy market fundamentals in Agricultural Sciences, partially offset these headwinds."

All of Dow's major segments, except Agricultural Sciences, reported lower sales and EBITDA for the year:

• The Electronic and Functional Materials segment reported sales of $1.1 billion for the quarter, a 3.29% increase from fourth-quarter 2011, and EBITDA of $155 million, a 33.76% decrease. For the year, sales stood at $4.48 billion, a 2.57% decrease from 2011, and EBITDA stood at $958 million, an 11.62% decrease.
• The Coatings and Infrastructure Solutions segment reported sales of $1.58 billion for the quarter, a 1.02% increase from the same period in the previous year, and EBITDA of $36 million, compared with $177 million in fourth-quarter 2011. For the year, sales stood at $6.9 billion, a 4.19% decrease from 2011, and EBITDA stood at $823 million, a 29.48% decrease.
• The Agricultural Sciences segment reported sales of $1.57 billion for the quarter, a 16.52% increase from fourth-quarter 2011, and EBITDA of $156 million, a 7.59% increase. For the year, sales stood at $6.38 billion, a 12.86% increase from 2011, and EBITDA stood at $977 million, a 7.01% increase.
• The Performance Materials segment reported sales of $3.36 billion for the quarter, a 5.49% decrease from the same period in the previous year, and an EBITDA loss of $137 million, compared with a gain of $225 million in fourth-quarter 2011. For the year, sales stood at $13.61 billion, a 7.09% decrease from 2011, and EBITDA stood at $1.04 billion, a 40.73% decrease.
• The Performance Plastics segment reported sales of $3.68 billion for the quarter, an increase of less than 1% from fourth-quarter 2011, and EBITDA of $803 million, a 20.39% increase. For the year, sales stood at $14.48 billion, a 10.94% decrease from 2011, and EBITDA stood at $3.02 billion, a 12.27% decrease.
• The Feedstocks and Energy segment reported sales of $2.58 billion for the quarter, a 9.28% decrease from the same period in the previous year, and EBITDA of $186 million, a 6.29% increase. For the year, sales stood at $10.7 billion, a 5.37% decrease from 2011, and EBITDA stood at $718 million, a 23.62% decrease from 2011.

Among the most hopeful businesses for Dow in the coming year are the Electronic and Functional Materials segment, the Performance Plastics segment and the Agricultural Sciences segment.

"Our Electronic-Materials portfolio is positioned in winning areas, enabling faster processors, broader displays, and smaller internal components to match consumer trends," Liveris said in the conference call. "Our Agricultural Sciences business is answering the call from farmers, who are escalating demands for advanced solutions to feed our growing population and seeking higher yields. And then, of course, there's our Performance Plastics portfolio, an industry-leading franchise that is generating high returns today, even in the midst of drought-like conditions in Asia and Europe."

Liveris added that the Performance Plastics segment was well-positioned to take advantage of the ethylene market in coming years. Dow executives believe that a growth in ethylene demand will exceed capacity additions in the industry and that U.S. operating rates will tighten in the coming year. But Liveris said Dow has "uniquely advantaged" feedstock slate, including projects on the U.S. Gulf Coast, that puts the company ahead of its global competitors.

For more information, visit Industrial Info's North American Chemical Processing Project Database.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.