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Fourth Quarter of 2004 Highlights
- Sales for the fourth quarter of 2004 were a record $10.9 billion, up 31 percent from the same period last year, reflecting a 3 percent increase in volume and a 28 percent increase in price.
- Earnings per share were $1.06, including tax valuation adjustments and the gain from a divestiture totaling $0.21. This compares with $0.99 per share for the same quarter in 2003, which included tax benefits of $0.49 per share.
- Strong industry demand drove continued high operating rates and allowed Dow to expand margins across most businesses, despite an unprecedented $1.5 billion increase in feedstock and energy costs compared with the same period in 2003.
2004 Highlights
- 2004 sales increased to $40.2 billion, 23 percent higher than in 2003 and a new record for the Company. Volume increased 6 percent and price was up 17 percent.
- Although feedstock and energy costs climbed more than $3.4 billion in 2004 compared with 2003, the Company's focus on price/volume management and its continuing cost control efforts generated solid margin expansion.
- The Company reported earnings of $2.93 per share, including the net impact of restructuring, the gain from an asset divestiture and tax valuation adjustments totaling $0.22 per share. In 2003, the Company reported earnings of $1.87 per share, including tax benefits of $0.49 per share.
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Review of Fourth Quarter Results |
The Dow Chemical Company (NYSE: DOW) reported record sales of $10.9 billion for the fourth quarter of 2004, an increase of 31 percent compared with the same period in 2003, with volume up 3 percent and price up 28 percent.
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Net income climbed to $1,026 million, 10 percent higher than the fourth quarter last year, while earnings per share were $1.06, up from $0.99 a year ago. Earnings in the fourth quarter of 2004 included tax valuation adjustments and an after-tax gain from the sale of the DERAKANE™ business, totaling $0.21 per share. During the same period in 2003, tax benefits had a positive impact of $0.49 per share.
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Dow achieved double-digit price increases in all geographic areas and expanded margins in most of its businesses. As a result, despite incurring feedstock and energy costs that were 50 percent higher than the same quarter of last year, the Company was able to report its eighth consecutive quarter of margin recovery.
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"This has been another solid and encouraging quarter for Dow," said Andrew Liveris, Dow's President and Chief Executive Officer. "The headwind remains strong, but we were able to achieve significant margin restoration despite another unprecedented rise in feedstock and energy costs.
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"In part the margin expansion was driven by the improvement we saw in industry fundamentals. But price/volume management and our on-going commitment to controlling costs were equally important contributors. For example, Selling, Administrative and Research and Development expenses as a percent of sales fell below 6 percent for the quarter, compared with more than 7 percent in the same quarter of 2003 and 10 percent in 2002. And our nonconsolidated joint ventures continued to add substantially to our bottom line," he said.
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Sales in Performance Plastics climbed to $2.6 billion in the fourth quarter of 2004, an increase of 28 percent compared with the same period in 2003, with volume up 9 percent and price up 19 percent. Polyurethanes, Engineering Plastics and Epoxy Products led the way, each reporting an increase in sales of more than 25 percent compared with the fourth quarter of 2003. Demand for polyurethanes remained strong across a broad range of end-use markets, including appliance, automotive and construction. Dow's Epoxy Products business saw little sign of the usual seasonal slowdown, with demand for coatings and electronic applications spurring price and volume improvements. Engineering Plastics reported solid sales, with demand from the appliance, information technology and electronics industries stimulating increases in both volume and price. In addition, Dow's Licensing activities achieved a marked improvement in revenues, principally through new licensing of technology in Asia Pacific and the Middle East. EBIT(a) for the Performance Plastics segment was $351 million, including a gain of $90 million on the sale of the DERAKANE™ business. Excluding this gain, EBIT was $261 million, an increase of 29 percent compared with the same quarter of 2003.
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In Performance Chemicals, sales for the fourth quarter of 2004 were $1.8 billion, an increase of 29 percent compared with the same period in 2003. Volume increased 11 percent, due in part to the successful integration of the acrylics business acquired from Celanese in the first quarter of the year. Price improved 18 percent, led by Emulsion Polymers which saw partial restoration of its margins in the fourth quarter. Acrylics and Oxide Derivatives reported fourth quarter sales up by more than 50 percent compared with the same period in 2003. Increased volume contributed over half of that gain, mainly due to the Celanese acrylics acquisition but also supported by steady demand within the Amines business for end-use applications including agricultural chemicals, wood treatment products and construction materials. Specialty Polymers also reported a good quarter, with Liquid Separations' membrane revenues bolstered by a shipment of FilmTec membranes to the Middle East for use in the world's largest desalination plant. Performance Chemicals reported EBIT of $183 million for the fourth quarter, 29 percent higher than the same period last year.
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The Agricultural Sciences segment posted sales of $758 million for the fourth quarter of 2004, 10 percent higher than the same period in 2003. Volume increased by 8 percent, led by Europe and Latin America, while price was up 2 percent. Fungicide demand was particularly strong in South America, where high levels of soybean rust and increased planted acres enabled the Company to capture additional product sales. Sales of spinosad insect control products also rose during the quarter compared with the same period in 2003, with excellent growth from the ramp-up of products launched in Brazil and India. And continued demand for insecticides to combat locust outbreaks in West Africa resulted in a substantial year-on-year increase in sales of chlorpyrifos. EBIT of $41 million was 14 percent higher than the same period last year.
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Plastics had a strong fourth quarter, as sales climbed 42 percent from $2.0 billion in 2003 to $2.9 billion in 2004. Although the Company saw solid volume growth in several polymers compared with the same quarter of 2003, volume for the segment remained flat _ impacted by the second quarter divestiture of the Company's PET business as part of the formation of the Equipolymers joint venture. There was a continued strengthening of demand for polyethylene, with tightening global supply driving significant price increases across all geographic areas. Polypropylene also reported solid demand in Europe and North America and price increases in every region. The Plastics segment reported EBIT of $591 million for the fourth quarter, significantly higher than the $211 million reported in the same period last year.
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Chemicals sales also rose in the fourth quarter of 2004 compared with the same period in 2003, climbing 25 percent from $1.2 billion to $1.5 billion. Price increased 32 percent, while volume fell 7 percent, impacted by the divestiture of assets associated with the formation of the MEGlobal joint venture in the second quarter. Vinyl chloride monomer maintained strong sales throughout the quarter, driven by robust global demand for polyvinyl chloride. Demand for caustic soda remained strong across all industry segments _ alumina, pulp and paper and chemical processing _ and combined with high industry operating rates worldwide allowed for favorable price momentum. Despite some softness toward the end of the year in Asia, ethylene glycol margins also continued to expand due to high operating rates and improved pricing. The Chemicals segment reported EBIT for the quarter of $411 million, three and a half times that of the same quarter of 2003.
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Excluding the tax valuation adjustments and gain from the divestiture mentioned earlier, the effective tax rate for full year 2004 was 27 percent, compared with an estimated rate of 28 percent in the third quarter of 2004. The results for the fourth quarter reflected this year-to-date adjustment.
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Review of Results for 2004 |
Dow reported annual 2004 sales of $40.2 billion, compared with 2003 sales of $32.6 billion, a 23 percent increase and a new sales record for the Company. Net income was $2.8 billion, up from $1.7 billion reported a year ago. Earnings per share were $2.93, including tax valuation adjustments, the gain from the sale of the DERAKANE™ business and the net favorable impact of restructuring, which totaled $0.22 per share. In 2003, the Company reported earnings of $1.87 per share, including tax benefits of $0.49 per share.
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Overall volume increased 6 percent compared with 2003. Price was up 17 percent, more than offsetting a $3.4 billion increase in feedstock and energy costs compared with 2003. As a result, the Company achieved significant additional margin expansion and has now recovered around one third of the margin lost between 1995 and 2002.
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Commenting on the Company's results, Liveris said, "We began 2004 determined to maintain the momentum of our drive for financial fitness, to sustain the gains of 2003 and to further develop the foundation for long-term strategic growth. Supported by improving chemical industry fundamentals, we achieved success on all fronts. Once again, Dow employees rose to the challenge outlined in the Company's Action Plan: price and volume were aggressively managed; structural costs were kept in tight check; and capital spending remained on target at $1.3 billion. That's why we were able to improve margins through 2004 - and it's why I am confident we should see further margin restoration in 2005.
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"Through the year ahead we expect that continued global economic growth will spur higher chemical industry demand and tighten supply/demand balances still further," said Liveris. "But against that, the high and volatile feedstock and energy costs that have characterized this industry for the past two years look set to continue _ which is why we will maintain our focus on financial discipline, controlling those things we can control, as we move forward in 2005."
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(a) Earnings before interest, income taxes and minority interests ("EBIT"). Reconciliation of EBIT to "Net Income Available for Common Stockholders" is provided following the Operating Segments and Geographic Areas table.
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| Upcoming Webcast |
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 10 a.m. EST on www.dow.com.
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| About Dow |
Dow is a leader in science and technology, providing innovative chemical, plastic and agricultural products and services to many essential consumer markets. With annual sales of $40 billion, Dow serves customers in 175 countries and a wide range of markets that are vital to human progress, including food, transportation, health and medicine, personal and home care, and building and construction, among others. Committed to the principles of sustainable development, Dow and its 43,000 employees seek to balance economic, environmental and social responsibilities. References to "Dow" or the "Company" mean The Dow Chemical Company and its consolidated subsidiaries unless otherwise expressly noted.
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Note: The forward-looking statements contained in this document involve risks and uncertainties that may affect the Company's operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the Company's expectations will be realized. The Company assumes no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.
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Supplemental Information |
The following tables summarize the impact of the certain items recorded in the three-month and twelve-month periods ended December 31, 2004 and 2003:
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Description of Certain Items Affecting Results:
Fourth Quarter of 2004 and 2003 |
Results in the fourth quarter of 2004 were favorably impacted by a pretax gain of $90 million on the sale of the DERAKANE™ business, which was reflected in the Performance Plastics segment. The Company also recorded tax benefits of $146 million related to the reversal of tax valuation allowances and the impact of a decrease in the tax rate in The Netherlands on deferred tax liabilities.
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In the fourth quarter of 2003, earnings were favorably impacted by the reversal of tax valuation allowances of $454 million related to the utilization of certain tax assets.
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Full Year 2004 and 2003 |
In addition to the favorable impacts described above for the fourth quarter of 2004, earnings for the year 2004 were impacted by a net pretax gain from restructuring of $20 million. This included gains totaling $563 million from asset divestitures associated with the formation of two new joint ventures, offset by asset impairments of $99 million related to the future sale or shutdown of facilities; the recognition of a liability of $148 million associated with a loan guarantee for Cargill Dow LLC, a 50:50 joint venture; and employee-related restructuring charges of $296 million.
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In addition to the tax benefits described above for the fourth quarter of 2003, earnings for the year 2003 were impacted by an after-tax charge of $9 million related to the adoption of Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations."
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Download Fourth Quarter 2004 Financial Statements in PDF format (339KB PDF)
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