DOW Dow Inc

In the news release, Dow reports fourth quarter 2022 results, issued 26-Jan-2023 by The Dow Chemical Company over PR Newswire, we are advised by the company that the last sentence in the eighth bullet under the Financial Highlights section should read "Free cash flow[1] was $1.5 billion." rather than "Free cash flow[1] was $1.5 million." as originally issued inadvertently. The complete, corrected release follows:

MIDLAND, Mich., Jan. 26, 2023 /PRNewswire/ -- Dow (NYSE: DOW):

FINANCIAL HIGHLIGHTS

• GAAP earnings per share (EPS) was $0.85; operating EPS¹ was $0.46, compared to $2.15 in the year-ago period and $1.11 in the prior quarter. Operating EPS excludes significant items in the quarter, totaling $0.39 per share, primarily due to the successful and final resolution and recognition of a long-running patent infringement award.
• Net sales were $11.9 billion, down 17% versus the year-ago period and 16% sequentially, reflecting declines in all operating segments driven by slower GDP growth and customer destocking.
• Local price declined 5% versus the year-ago period, driven by Packaging & Specialty Plastics. Sequentially, local price decreased 6% with declines in all operating segments and regions.
• Currency decreased net sales by 4% year-over-year and 1% versus the prior quarter, reflecting the impact of broad-based strength of the U.S. dollar.
• Volume decreased 8% versus the year-ago period, led by an 18% decline in Europe, the Middle East, Africa, and India (EMEAI), and destocking in building & construction and consumer durables end-markets in the U.S. & Canada. Sequentially, volume decreased by 9% with declines in all regions.
• Equity losses were $43 million, $267 million lower than the year-ago period, with declines at the Company's principal joint ventures. Equity earnings improved by $15 million from the prior quarter, due to improved earnings at the Thai and Sadara joint ventures.
• GAAP net income was $647 million. Operating EBIT¹ was $601 million, down $1.7 billion versus the year-ago period and down $594 million sequentially, with declines in all operating segments due to lower pricing and reduced operating rates to match market dynamics.
• Cash provided by operating activities – continuing operations was $2.1 billion, down $479 million year-over-year and up $138 million compared to the prior quarter.  Free cash flow¹ was $1.5 billion.
• Returns to shareholders totaled $620 million in the quarter, including $495 million in dividends and $125 million in share repurchases.
• The Company delivered 2022 full year net sales of $56.9 billion, versus $55 billion in 2021. GAAP net income was $4.6 billion, versus $6.4 billion in 2021. Operating EBIT was $6.6 billion, versus $9.5 billion in 2021. Cash provided by operating activities – continuing operations was $7.5 billion, up from $7.1 billion in 2021. The Company delivered a cash flow conversion¹ of 80% and returns to shareholders totaled $4.3 billion, through $2.3 billion in share repurchases and $2 billion in dividends.

SUMMARY FINANCIAL RESULTS

1. Op. Earnings Per Share, Op. EBIT, Op. EBIT Margin, Op. EBITDA, and Free Cash Flow are non-GAAP measures. See page 6 for further discussion.

CEO QUOTE

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

"In the fourth quarter, Team Dow continued to proactively navigate slowing global growth, challenging energy markets, and destocking. In response, we shifted our focus to cash generation in the quarter as we lowered operating rates, implemented cost savings measures, and prioritized higher-value products where demand remained resilient. These actions resulted in $2.1 billion of cash flow from operations.

"Dow's distinct competitive advantages and our operational and financial discipline enabled us to deliver resilient performance in 2022, despite a challenging second half of the year. For the year, we generated $7.5 billion of cash flow from operations – up more than $400 million year-over-year – and returned a total of $4.3 billion to our shareholders while continuing to advance our Decarbonize and Grow strategy. In addition, our ongoing higher-return, lower-risk, and faster-payback investments in our global operations will continue to create long-term shareholder value as we meet the growing customer demand for innovative and more sustainable solutions."

SEGMENT HIGHLIGHTS

Packaging & Specialty Plastics

Packaging & Specialty Plastics segment net sales in the quarter were $6.1 billion, down 16% versus the year-ago period. Local price decreased 9% year-over-year, as gains across all regions in functional polymers were more than offset by lower polyethylene and olefin prices. Volume decreased 4% year-over-year, driven primarily by lower olefins and packaging demand in EMEAI, which was partly offset by continued resilience in demand for functional polymers. Currency decreased net sales by 3%. On a sequential basis, net sales decreased by 17%, driven by lower hydrocarbon sales and polyethylene local prices.

Equity earnings were $56 million, down $74 million compared to the year-ago period, primarily due to lower integrated polyethylene margins at the Company's principal joint ventures. Equity earnings were flat on a sequential basis.

Operating EBIT was $655 million, compared to $1.4 billion in the year-ago period, down primarily due to lower integrated polyethylene margins. Sequentially, Op. EBIT was down $130 million as lower raw material and energy costs were more than offset by lower polyethylene local prices and operating rates.

Packaging and Specialty Plastics business reported a net sales decrease versus the year-ago period, as local price and volume gains in functional polymers for renewable energy applications and mobility end-markets were more than offset by lower polyethylene prices and lower industrial and consumer packaging demand in EMEAI. Sequentially, net sales decreased on lower polyethylene local prices, partly offset by improving market demand dynamics in Asia Pacific.

Hydrocarbons & Energy business reported a net sales decrease compared to the year-ago period and sequentially, driven by lower olefin and aromatic sales in the U.S. & Canada and EMEAI.

Industrial Intermediates & Infrastructure

Industrial Intermediates & Infrastructure segment net sales were $3.7 billion, down 20% versus the year-ago period. Local price decreased 1% year-over-year and currency decreased net sales by 5%. Volume was down 14% year-over-year, primarily driven by lower demand in EMEAI for industrial, consumer durables, and building & construction applications. On a sequential basis, the segment recorded a net sales decline of 10% as a seasonal increase in deicing fluid demand was more than offset by declines in building & construction, consumer durables, and industrial applications. 

Equity losses for the segment were $96 million, a decrease of $186 million compared to the year-ago period driven by competitive pricing pressures in MEG and propylene oxide derivatives due to supply additions in China, as well as lower demand. On a sequential basis, equity earnings improved by $18 million, primarily due to improved earnings at Sadara.

Operating EBIT was $164 million, compared to $595 million in the year-ago period, driven by lower demand and increased energy costs particularly in EMEAI. On a sequential basis, operating EBIT margins expanded 40 basis points as lower energy costs versus the prior quarter were partly offset by lower volumes.

Polyurethanes & Construction Chemicals business reported a net sales decrease compared to the year-ago period, primarily driven by lower demand in EMEAI for consumer durables, industrial, and building & construction applications, as well as currency impacts. Sequentially, net sales declined due to value chain destocking and seasonality in building & construction.

Industrial Solutions business reported lower net sales compared to the year-ago period, as strong demand for pharmaceutical and energy applications was more than offset by lower volumes in coatings and industrial markets. Sequentially, net sales decreased as local price declines and lower demand in industrial end-markets were partly offset by a seasonal increase in deicing fluid demand.

Performance Materials & Coatings

Performance Materials & Coatings segment net sales in the quarter were $2.1 billion, down 20% versus the year-ago period. Local price decreased 2% year-over-year, as price gains for performance silicones and architectural coatings were more than offset by lower pricing for siloxanes and acrylic monomers. Currency decreased net sales by 5%. Volume declined 13% year-over-year, as resilient demand in mobility was more than offset by declines primarily in building & construction end-markets. On a sequential basis, net sales were down 22% due to lower demand for coatings, industrial, and building & construction applications, as well as local price declines for siloxanes and acrylic monomers. 

Operating EBIT was a loss of $130 million, compared to earnings of $295 million in the year-ago period due to local price declines in siloxanes and acrylic monomers and lower operating rates in the quarter to align with end-market dynamics. Sequentially, Op. EBIT declined $432 million, driven by lower prices, demand and operating rates.

Consumer Solutions business reported a decrease in net sales versus the year-ago period, as local price gains for performance silicones applications were more than offset by lower demand and prices for siloxanes. Sequentially, net sales declined due to decreased demand in electronics and personal care end-markets, driven by year-end destocking in the value chain as well as lower demand and local prices for siloxanes.  

Coatings & Performance Monomers business reported lower net sales compared to the year-ago period. Local price gains for architectural and industrial coatings were more than offset by price declines in acrylic monomers. Volume declined year-over-year on decreased demand for coatings applications in the U.S. & Canada and EMEAI, compounded by value chain restocking in the year-ago period. Sequentially, net sales declined primarily due to seasonally lower demand and value chain destocking for coatings applications in the U.S. & Canada and EMEAI.

OUTLOOK

"As we enter 2023, we remain focused on managing near-term dynamics while continuing to position the company for long-term value creation," said Fitterling. "While we see initial positive signs from moderating inflation in the U.S., improving outlook for energy in Europe, and re-opening in China, we continue to be prudent and proactive by implementing a playbook of targeted actions focused on optimizing labor and purchased service costs, reducing turnaround spending, and enhancing productivity. These actions are collectively expected to deliver $1 billion in cost savings. Going forward, we will continue to maintain our disciplined and balanced approach to capital allocation and focus on cash flow generation, while executing our strategic priorities for long-term sustainable and profitable growth."

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 leadership to achieve profitable growth and help 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 manufacturing sites in 31 countries and employs approximately 37,800 people. Dow delivered sales of approximately $57 billion in 2022. 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 press release 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; any sanction, export restrictions, supply chain disruptions or increased economic uncertainty related to the ongoing conflict between Russia and Ukraine; 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 including the ongoing conflict between Russia and Ukraine; weather events and natural disasters; and disruptions in Dow's information technology networks and systems; and risks related to Dow's separation from DowDuPont Inc. such as Dow's obligation to indemnify DuPont de Nemours, Inc. and/or Corteva, Inc. 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, 2021 and the Company's subsequent Quarterly Reports on Form 10-Q. 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 Inc. and TDCC assume 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.           

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.

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.

Operating Return on Invested Capital ("ROC") is defined as net operating profit after tax, excluding the impact of significant items, divided by total average capital, also referred to as ROIC.

1. Europe, Middle East, Africa, and India.

1. "Income before income taxes."
2. "Net income available for Dow Inc. common stockholders." The income tax effect on significant items was calculated based upon the enacted tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.
3. "Earnings per common share - diluted," which includes the impact of participating securities in accordance with the two-class method.
4. Costs associated with implementing the Company's Digital Acceleration program.
5. Includes restructuring charges, asset related charges, and costs associated with implementing the Company's 2020 Restructuring Program.
6. Partial reversal of certain asset related reserves recorded in the first quarter of 2022 related to the conflict between Russia and Ukraine.
7. Related to a gain associated with a legal matter with Nova Chemicals Corporation and a gain related to an adjustment of the Dow Silicones breast implant liability.
8. Primarily related to charges associated with agreements entered into with DuPont and Corteva as part of the separation and distribution which, among other matters, provides for cross-indemnities and allocations of obligations and liabilities for periods prior to, at and after the completion of the separation.
9. Related to reversals of certain tax valuation allowances partially offset by charges related to uncertain tax positions.

1. "Income before income taxes."
2. "Net income available for Dow Inc. common stockholders." The income tax effect on significant items was calculated based upon the enacted tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.
3. "Earnings per common share - diluted," which includes the impact of participating securities in accordance with the two-class method.
4. Costs associated with implementing the Company's Digital Acceleration program.
5. Includes restructuring charges, asset related charges, and costs associated with implementing the Company's 2020 Restructuring Program.
6. Asset related charges including inventory write-downs, bad debt reserves, and impairments of other assets related to the conflict between Russia and Ukraine.
7. Related to a gain associated with a legal matter with Nova Chemicals Corporation and a gain related to an adjustment of the Dow Silicones breast implant liability.
8. Primarily related to charges associated with agreements entered into with DuPont and Corteva as part of the separation and distribution which, among other matters, provides for cross-indemnities and allocations of obligations and liabilities for periods prior to, at and after the completion of the separation.
9. Related to reversals of certain tax valuation allowances partially offset by charges related to uncertain tax positions.

1. Free Cash Flow for the twelve months ended December 31, 2021 reflects a $1 billion elective pension contribution.

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SOURCE The Dow Chemical Company