Dow reports fourth quarter 2021 results

MIDLAND, Mich., Jan. 27, 2022 /PRNewswire/ -- Dow (NYSE: DOW):

FINANCIAL HIGHLIGHTS

• GAAP earnings per share (EPS) was $2.32. Operating EPS¹ was $2.15, compared to $0.81 in the year-ago period. Operating EPS excludes certain items, totaling $0.17 per share, primarily due to certain tax-related items.
• Net sales were $14.4 billion, up 34% versus the year-ago period, with improvement in every operating segment, business and region. Sequentially, net sales were down 3% primarily driven by decreased polyethylene volume due to supply constraints as well as lower olefin and co-product prices.
• Local price increased 39% versus the year-ago period, reflecting gains in all operating segments, businesses and regions. Sequentially, price increased 1% with gains in Performance Materials & Coatings and Industrial Intermediates & Infrastructure, led by industrial, construction and personal care applications along with continued tightness in siloxane supply.
• Volume decreased 4% versus the year-ago period and 3% sequentially, primarily driven by supply constraints from maintenance and lingering effects from Covid and weather-related outages, as well as global logistics constraints across several key value chains.
• Equity earnings were $224 million, up $118 million from the year-ago period due to margin expansion at Sadara and the Thai and Kuwait joint ventures. Sequentially, equity earnings were down $25 million driven by impacts from planned maintenance turnaround activity at Sadara.
• GAAP Net Income was $1.8 billion. Operating EBIT¹ was $2.3 billion, up $1.2 billion from the year-ago period, with gains in every operating segment due to margin expansion and increased equity earnings. Sequentially, operating EBIT declined $621 million as price gains in Performance Materials & Coatings and Industrial Intermediates & Infrastructure were more than offset by increased raw material and energy costs and supply constraints.
• Cash provided by operating activities – continuing operations was $2.6 billion, up $901 million year-over-year and a decrease of $162 million compared to the prior quarter. Free cash flow¹ was $2.1 billion.
• Returns to shareholders totaled $912 million in the quarter, comprised of $512 million in dividends and $400 million in share repurchases.

SUMMARY FINANCIAL RESULTS

CEO QUOTE

Jim Fitterling, chairman and chief executive officer, commented on the quarter:

"In the fourth quarter, Team Dow once again delivered top- and bottom-line growth year-over-year across all operating segments. Underlying demand strength and continued operating discipline enabled us to overcome supply and logistics constraints as well as higher raw material and energy costs.

"Our performance in the fourth quarter capped a record year for Dow in 2021. We achieved full year sales of $55 billion and operating EBIT of $9.5 billion, with growth and margin expansion across all operating segments, as well as $7.1 billion of cash flow from operations and annual ROIC of more than 22%. We delivered on our financial priorities with proactive liability management actions through the year, including reducing gross debt by $2.4 billion and a $1 billion elective pension contribution, while returning a cumulative $3.1 billion to shareholders. Importantly, we also announced our plan to decarbonize our assets while growing our earnings, positioning Dow to continue on a path to deliver more than $3 billion of accretive underlying earnings growth, advance our sustainability leadership, and create long-term value for our shareholders."

SEGMENT HIGHLIGHTS

Packaging & Specialty Plastics

Packaging & Specialty Plastics segment net sales in the quarter were $7.2 billion, up 40% versus the year-ago period. Local price increased 44% year-over-year due to tight supply and demand balances, with double-digit gains in both businesses and across all regions. Despite continued robust end-market demand in packaging applications, volume declined 3% year-over-year, as gains in energy sales volume was more than offset by lower polyethylene volume, primarily in Asia Pacific due to supply constraints. Currency decreased net sales by 1%. On a sequential basis, the segment delivered a 7% net sales decline, primarily due to lower olefin and co-product prices and decreased polyethylene volume resulting from supply constraints.

Equity earnings were $130 million, up $53 million compared to the year-ago period due to higher integrated polyethylene margins at the principal joint ventures. On a sequential basis, equity earnings increased by $6 million as a result of gains at Sadara and the Kuwait joint ventures.

Operating EBIT was $1.4 billion, compared to $780 million in the year-ago period, reflecting margin improvement in the core business and increased equity earnings, primarily due to higher margins on tight supply and demand balances, partly offset by lower supply volumes. Sequentially, Op. EBIT was down $512 million and Op. EBIT margins declined by 520 basis points on lower olefin and co-product prices and higher raw material and energy costs.

Packaging and Specialty Plastics business reported a net sales increase versus the year-ago period, led by local price gains in all regions as well as in flexible food & beverage packaging and industrial & consumer packaging applications. Volumes declined year-over-year, primarily in Asia Pacific due to supply constraints. Compared to the prior quarter, the business delivered price gains in Asia Pacific and Europe, Middle East, Africa & India that were more than offset by declines in other regions and lower sales volumes due to supply constraints.

Hydrocarbons & Energy business reported a net sales increase compared to the year-ago period, driven primarily by higher local prices in olefins and aromatics and volume gains in energy. Sequentially, sales declined due to lower olefin and co-product prices, which were partly offset by higher olefin volume primarily in the U.S. & Canada.

Industrial Intermediates & Infrastructure

Industrial Intermediates & Infrastructure segment net sales in the quarter were $4.5 billion, up 30% versus the year-ago period. Local price improved 38% year-over-year with gains in both businesses and in all regions on continued strong industry demand. Volume declined 7% year-over-year due to a planned transition away from a low-margin coproducer contract and planned maintenance turnaround activity. On a sequential basis, the segment recorded a net sales increase of 1%, with local price gains in both businesses and all regions. Volume declined 2% sequentially as improved supply availability in Industrial Solutions was more than offset by planned maintenance turnaround activity in Polyurethanes & Construction Chemicals.

Equity earnings were $90 million, an increase of $54 million compared to the year-ago period, driven by margin expansion at the Kuwait joint ventures. On a sequential basis, equity earnings decreased by $32 million, primarily from lower supply availability at the Sadara joint venture due to planned maintenance turnaround activity.

Operating EBIT was $595 million, an increase of $299 million compared to the year-ago period, primarily due to continued price strength in both businesses, driving Op. EBIT margins up 460 basis points year-over-year. Sequentially, Op. EBIT was down $118 million, and Op. EBIT margins declined by 280 basis points, primarily driven by energy cost increases in Europe and planned maintenance turnaround activity.

Polyurethanes & Construction Chemicals business increased net sales compared to the year-ago period as tight supply and demand balances in key value chains led to broad-based price gains in all regions. Volume declines year-over-year were primarily driven by a planned transition away from a low-margin coproducer contract and our planned maintenance turnaround activity. Sequentially, net sales declined as local price increases in all regions were more than offset by planned maintenance turnaround activity.

Industrial Solutions business net sales increased from the year-ago period with local price gains in all regions. Volume was flat year-over-year as higher volume from a renewable energy contract was offset by fewer licensing and catalyst sales. Net sales increased sequentially on volume growth from improved supply availability and local price gains in all regions.

Performance Materials & Coatings

Performance Materials & Coatings segment net sales in the quarter were $2.6 billion, up 26% versus the year-ago period. Local price increased 30% year-over-year, with gains in both businesses and in all regions. Volume declined 4% year-over-year as stronger demand for performance silicones applications and architectural coatings in the U.S. & Canada was more than offset by lower siloxane supply availability due to a pull forward of maintenance activity to coincide with dual-control actions in China. On a sequential basis, net sales were up 1% with local price gains in both businesses and in all regions. Volume declined 8% sequentially as increased supply availability of acrylic monomers was more than offset by maintenance activity at a siloxane facility in China and lower seasonal demand for coatings applications.

Operating EBIT was $295 million, compared to $50 million in the year-ago period, as Op. EBIT margins increased 900 basis points due to strong price momentum for silicones and coatings offerings. Sequentially, Op. EBIT improved $11 million, as price gains were partly offset by planned maintenance turnaround activity.

Consumer Solutions business achieved higher net sales, with local price gains in all regions and end-market applications year-over-year. Volume declined versus the year-ago period, as strong demand particularly for industrial, electronics and personal care applications was offset by lower supply availability due to a pull forward of maintenance activity to coincide with dual-control actions in China. Sequentially, net sales were up as local price increases in all regions and end-market applications more than offset volume declines, primarily due to maintenance activity at a siloxane facility.

Coatings & Performance Monomers business achieved increased net sales compared to the year-ago period, led by local price gains in all regions on tight supply and demand balances and higher raw material costs. Volume declined year-over-year as stronger demand for architectural coatings and industrial coatings primarily in the U.S. & Canada was more than offset by lower merchant sales of acrylic monomers partly due to Dow's own higher-value captive use. Sequentially, the business delivered local price gains in all regions. Volume declined sequentially due to seasonal demand declines for coatings applications in the Northern Hemisphere.

OUTLOOK

"In 2022, we expect continued demand strength across our end markets, supported by growing industrial production and sustained consumer spending," said Fitterling. "We are working hard to normalize operating rates, inventory and service levels following a year of supply constraints and Covid-related logistics challenges.

"While the global economy continues to be impacted by supply chain pressures, these logistics constraints are expected to ease throughout the year to fulfill elevated order backlogs and pent-up customer demand. As we navigate these near-term dynamics, we will continue to be disciplined in the implementation of our strategy and progress on our higher-return, lower-risk growth projects and efficiency programs. We will also further advance our key sustainability initiatives to decarbonize our assets and capture increasing demand for lower carbon and circular solutions."

Conference Call

Dow will host a live webcast of its fourth quarter earnings conference call with investors to discuss its results, business outlook and other matters today at 8:00 a.m. ET. The webcast and slide presentation that accompany the conference call will be posted on the events and presentations page of investors.dow.com.

About Dow

Dow (NYSE: DOW) combines global breadth; asset integration and scale; focused innovation and materials science expertise; leading business positions; and environmental, social and governance (ESG) leadership to achieve profitable growth and deliver a sustainable future. The Company's ambition is to become the most innovative, customer centric, inclusive and sustainable materials science company in the world. Dow's portfolio of plastics, industrial intermediates, coatings and silicones businesses delivers a broad range of differentiated, science-based products and solutions for its customers in high-growth market segments, such as packaging, infrastructure, mobility and consumer applications. Dow operates 104 manufacturing sites in 31 countries and employs approximately 35,700 people. Dow delivered sales of approximately $55 billion in 2021. References to Dow or the Company mean Dow Inc. and its subsidiaries. For more information, please visit www.dow.com or follow @DowNewsroom on Twitter.

Cautionary Statement about Forward-Looking Statements

Certain statements in this presentation are "forward-looking statements" within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements often address expected future business and financial performance, financial condition, and other matters, and often contain words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "may," "opportunity," "outlook," "plan," "project," "seek," "should," "strategy," "target," "will," "will be," "will continue," "will likely result," "would" and similar expressions, and variations or negatives of these words or phrases.

Forward-looking statements are based on current assumptions and expectations of future events that are subject to risks, uncertainties and other factors that are beyond Dow's control, which may cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements and speak only as of the date the statements were made. These factors include, but are not limited to: sales of Dow's products; Dow's expenses, future revenues and profitability; the continuing global and regional economic impacts of the coronavirus disease 2019 ("COVID-19") pandemic and other public health-related risks and events on Dow's business; capital requirements and need for and availability of financing; unexpected barriers in the development of technology, including with respect to Dow's contemplated capital and operating projects; Dow's ability to realize its commitment to carbon neutrality on the contemplated timeframe; size of the markets for Dow's products and services and ability to compete in such markets; failure to develop and market new products and optimally manage product life cycles; the rate and degree of market acceptance of Dow's products; significant litigation and environmental matters and related contingencies and unexpected expenses; the success of competing technologies that are or may become available; the ability to protect Dow's intellectual property in the United States and abroad; developments related to contemplated restructuring activities and proposed divestitures or acquisitions such as workforce reduction, manufacturing facility and/or asset closure and related exit and disposal activities, and the benefits and costs associated with each of the foregoing; fluctuations in energy and raw material prices; management of process safety and product stewardship; changes in relationships with Dow's significant customers and suppliers; changes in consumer preferences and demand; changes in laws and regulations, political conditions or industry development; global economic and capital markets conditions, such as inflation, market uncertainty, interest and currency exchange rates, and equity and commodity prices; business or supply disruptions; security threats, such as acts of sabotage, terrorism or war; weather events and natural disasters; and disruptions in Dow's information technology networks and systems.

Risks related to Dow's separation from DowDuPont Inc. include, but are not limited to: (i) Dow's failure to achieve in full the anticipated benefits from the separation from DowDuPont Inc.; (ii) certain tax risks associated with the separation; (iii) the failure of Dow's pro forma financial information to be a reliable indicator of Dow's future results; (iv) receipt of less favorable terms in the commercial agreements Dow entered into with DuPont de Nemours, Inc. ("DuPont") and Corteva, Inc. ("Corteva"), including restrictions under intellectual property cross-license agreements, than Dow would have received from an unaffiliated third party; and (v) Dow's obligation to indemnify DuPont and/or Corteva for certain liabilities.

Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from such forward-looking statements is included in the section titled "Risk Factors" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. These are not the only risks and uncertainties that Dow faces. There may be other risks and uncertainties that Dow is unable to identify at this time or that Dow does not currently expect to have a material impact on its business. If any of those risks or uncertainties develops into an actual event, it could have a material adverse effect on Dow's business. Dow assumes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws.

®TM Trademark of The Dow Chemical Company ("Dow") or an affiliated company of Dow 

Non-GAAP Financial Measures

This earnings release includes information that does not conform to U.S. GAAP and are considered non-GAAP measures. Management uses these measures internally for planning, forecasting and evaluating the performance of the Company's segments, including allocating resources. Dow's management believes that these non-GAAP measures best reflect the ongoing performance of the Company during the periods presented and provide more relevant and meaningful information to investors as they provide insight with respect to ongoing operating results of the Company and a more useful comparison of year-over-year results. These non-GAAP measures supplement the Company's U.S. GAAP disclosures and should not be viewed as alternatives to U.S. GAAP measures of performance. Furthermore, such non-GAAP measures may not be consistent with similar measures provided or used by other companies. Non-GAAP measures included in this release are defined below. Reconciliations for these non-GAAP measures to U.S. GAAP are provided in the Selected Financial Information and Non-GAAP Measures section starting on page 11. Dow does not provide forward-looking U.S. GAAP financial measures or a reconciliation of forward-looking non-GAAP financial measures to the most comparable U.S. GAAP financial measures on a forward-looking basis because the Company is unable to predict with reasonable certainty the ultimate outcome of pending litigation, unusual gains and losses, foreign currency exchange gains or losses and potential future asset impairments, as well as discrete taxable events, without unreasonable effort. These items are uncertain, depend on various factors, and could have a material impact on U.S. GAAP results for the guidance period.

Operating earnings per share is defined as "Earnings per common share - diluted" excluding the after-tax impact of significant items.

Operating EBIT is defined as earnings (i.e., "Income before income taxes") before interest, excluding the impact of significant items.

Operating EBIT margin is defined as Operating EBIT as a percentage of net sales.

Operating EBITDA is defined as earnings (i.e., "Income before income taxes") before interest, depreciation and amortization, excluding the impact of significant items.

Operating return on invested capital ("ROIC") is defined as net operating profit after tax, excluding the impact of significant items, divided by total average capital.

Free cash flow is defined as "Cash provided by operating activities - continuing operations," less capital expenditures. Under this definition, free cash flow represents the cash generated by the Company from operations after investing in its asset base. Free cash flow, combined with cash balances and other sources of liquidity, represent the cash available to fund obligations and provide returns to shareholders. Free cash flow is an integral financial measure used in the Company's financial planning process.

Cash flow conversion is defined as "Cash provided by operating activities - continuing operations," divided by Operating EBITDA. Management believes cash flow conversion is an important financial metric as it helps the Company determine how efficiently it is converting its earnings into cash flow.

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SOURCE The Dow Chemical Company