Dow Reports Third Quarter Results

Third Quarter 2015 Highlights

·Dow reported earnings per share of $1.09, or operating earnings per share of $0.82(1). This compares with earnings of $0.71 per share in the year-ago period, or earnings of $0.72 per share on an operating basis. Certain Items in the quarter included a gain of $621 million related to the sale of AgroFresh, Dow’s post-harvest specialty chemical business, as well as $51 million of charges associated with ongoing portfolio management actions.

·Sales were $12 billion, down 16 percent year over year driven by pricing and currency.

·Volume rose 2 percent, excluding the impact of divestitures and acquisitions. Gains were reported in most operating segments, excluding Agricultural Sciences, led by Performance Plastics (up 5 percent) and Infrastructure Solutions and Consumer Solutions (both up 2 percent).

·Volume growth, excluding divestitures and acquisitions, was reported in Asia Pacific (up 7 percent), Europe, Middle East, Africa and India (EMEAI) (up 3 percent) and North America (up 1 percent), with a decline reported in Latin America (down 1 percent). In key regions, demand was led by Greater China (up 12 percent), Europe (up 3 percent) and India (up 7 percent).

·EBITDA(2) rose to $2.9 billion, or $2.4 billion on an operating basis(3) as Dow captured demand with its innovative solutions in key value chains, including transportation, packaging, infrastructure and semiconductor markets.

·Operating EBITDA margin(4) grew 370 basis points to nearly 20 percent versus the year-ago period, reflecting disciplined price/volume management in the midst of declining raw material costs. This represents the highest third-quarter result since 2005. Gains were reported in Performance Plastics (up more than 700 basis points), Consumer Solutions (up 216 basis points), Performance Materials & Chemicals (up 187 basis points) and Infrastructure Solutions (up 128 basis points), with a decline reported in Dow AgroSciences (down 227 basis points).

·Cash from operations was $2.5 billion in the quarter, up more than $700 million, or 41 percent versus the same period last year. Year to date, Dow has delivered $5.2 billion in cash from operations – up $1.4 billion versus the year-ago period. Through the third quarter, Dow returned $1.9 billion in declared dividends and share repurchases. The Company announced the completed sale of Dow Chlorine Products on Oct. 5, 2015, resulting in an additional $1.5 billion of common share buybacks, bringing the total cash returned to shareholders to $3.5 billion year to date.

Comment

Andrew N. Liveris, Dow’s chairman and chief executive officer, stated:

"The power and strength of our strategy and our diversified and integrated portfolio has now delivered twelve quarters in a row of year-over-year earnings growth. Our entire organization continues to demonstrate the discipline and agility needed to deliver consistent earnings and margin growth as well as strong cash flow. Our investment in innovative products and technologies is driving margin expansion in challenging economic environments.

"We are operating from a position of financial strength as we continue to execute disciplined portfolio management, as well as start up our large growth investments on the U.S. Gulf Coast and in Saudi Arabia. All of this will drive earnings higher, enhance return on capital and generate significant cash flow, which continue to fuel our ability to return increasing value to our shareholders."

Three Months Ended

In millions, except per share amounts

September 30, 2015

September 30, 2014

Net Sales

$12,036

$14,405

Adjusted Sales(5)

$11,943

$14,269

Net Income Available for Common Stockholders

$1,290

$852

Net Income Available for Common Stockholders,

Excluding Certain Items

$959

$860

Earnings per Common Share – Diluted

$1.09

$0.71

Operating Earnings per Share

$0.82

$0.72

(5) "Adjusted Sales" is "Net Sales" excluding prior period sales of recent divestitures and current period sales for recent acquisitions.

Review of Third Quarter Results

The Dow Chemical Company (NYSE: DOW) reported earnings per share of $1.09, or operating earnings per share of $0.82. This compares with earnings of $0.71 per share in the year-ago period, or earnings of $0.72 per share on an operating basis.

Sales were $12 billion, down 16 percent year over year driven by pricing and currency. Volume rose 2 percent, excluding the impact of divestitures and acquisitions. Gains were reported in most operating segments, excluding Agricultural Sciences, led by Performance Plastics (up 5 percent) and Infrastructure Solutions and Consumer Solutions (both up 2 percent).

Volume growth, excluding divestitures and acquisitions, was reported in Asia Pacific (up 7 percent), EMEAI (up 3 percent) and North America (up 1 percent), with a decline reported in Latin America (down 1 percent). In key regions, demand was led by Greater China (up 12 percent), Europe (up 3 percent) and India (up 7 percent).

EBITDA rose to $2.9 billion, or $2.4 billion on an operating basisas Dow captured demand with its innovative solutions in key value chains, including transportation, packaging, infrastructure and semiconductor markets.

Operating EBITDA margin grew 370 basis points to nearly 20 percent versus the year-ago period, reflecting disciplined price/volume management in the midst of declining raw material costs. This represents the highest third-quarter result since 2005. Gains were reported in Performance Plastics (up more than 700 basis points), Consumer Solutions (up 216 basis points), Performance Materials & Chemicals (up 187 basis points) and Infrastructure Solutions (up 128 basis points), with a decline reported in Dow AgroSciences (down 227 basis points).

Certain Items in the quarter included a gain of $621 million related to the sale of AgroFresh, Dow’s post-harvest specialty chemical business, as well as $51 million of charges associated with ongoing portfolio management actions.

Research and Development (R&D) expenses and Selling, General and Administrative (SG&A) expenses together declined 8 percent versus the year-ago period due primarily to productivity actions and the execution against the Company’s strategy to prioritize resources to high-return market sectors.

Cash from operations was $2.5 billion in the quarter, up more than $700 million, or 41 percent versus the same period last year. Year to date, Dow has delivered $5.2 billion in cash from operations – up $1.4 billion versus the year-ago period.

Through the third quarter, Dow returned nearly $2 billion in declared dividends and share repurchases. The Company announced the completed sale of Dow Chlorine Products on Oct. 5, 2015, resulting in an additional $1.5 billion of common share buybacks, bringing the total cash returned to shareholders to $3.5 billion year to date.

Agricultural Sciences

Agricultural Sciences reported third quarter sales of $1.2 billion, down from $1.4 billion in the year-ago period. Sales were impacted by lower crop commodity prices in Latin America, high channel inventories and significant currency headwinds.

Crop Protection reported decreased sales due to price declines driven by high channel inventories, currency headwinds and lower volume, primarily in Latin America. Demand remained strong for new product technologies (up 8 percent year to date), led by spinetoram insecticide and ISOCLAST™ Insecticide. Seeds reported decreased sales on the shift of acreage from corn to soybeans in Latin America and North America, as well as inventory pressures. On a year-to-date basis, Agricultural Sciences gained market share in Brazil in both Seeds and Crop Protection.

Operating EBITDA for the segment was a loss of $39 million, compared with a loss of $15 million in the year-ago period, reflecting a decline in price, as well as lost EBITDA from the sale of AgroFresh, which was partially offset by a gain of $44 million from the one-time sale of a joint venture.

Consumer Solutions

Consumer Solutions reported third quarter sales of $1.1 billion, down from $1.2 billion in the year-ago period. Higher sales demand for differentiated solutions in the automotive and semiconductor market sectors was more than offset by currency headwinds in EMEAI and Asia Pacific, as well as lower pricing in all businesses.

The segment reported sales volume growth in the majority of its businesses. Dow Automotive Systems reported volume gains on solid demand for light-weighting technologies in North America and EMEAI. Consumer Care reported volume gains in pharmaceutical markets for cellulosics-based products and in the personal care market. Dow Electronic Materials reported flat volume, as strong demand for semiconductor and growth technologies was offset by weakness in interconnect and display technologies.

Operating EBITDA for the segment was $289 million, up from $283 million in the year-ago period. This represents a quarterly record for the segment, driven by continued demand for performance-based solutions in the automotive and semiconductor market sectors, despite an unfavorable year-over-year reduction in equity earnings. Dow Automotive Systems achieved an all-time quarterly operating EBITDA record.

Equity earnings for the segment were $14 million, down from $34 million in the same quarter last year.

Infrastructure Solutions

Infrastructure Solutions reported third quarter sales of $1.9 billion, down from $2.2 billion in the year-ago period as volume growth in most areas was more than offset by lower prices in all businesses and currency headwinds.

The segment reported sales volume growth in the majority of its businesses. Dow Building & Construction reported volume growth in most geographic areas, led by share gains in EMEAI from innovative product offerings in the cellulosics chainand FR63 (flame retardant) licensing revenue, and demand for GREAT STUFFTM products in North America. Dow Coating Materials reported volume increases led by double-digit gains in EMEAI behind demand for architectural binders. Energy & Water Solutions reported volume declines in energy sales in North America, more than offsetting double-digit demand increases for reverse osmosis technologies in emerging regions. Performance Monomers reported volume growth on solid vinyl acetate monomer market demand, despite headwinds from a soft acrylic acid chain.

Operating EBITDA for the segment was $325 million, down from $343 million in the year-ago period, reflecting a decline in equity earnings that more than offset business EBITDA gains. Dow Building & Construction achieved an all-time quarterly operating EBITDA record on expansion of existing product lines and new flame-retardant technologies.

Equity earnings for the segment were $25 million, down from $56 million in the same quarter last year.

Performance Materials & Chemicals

Performance Materials & Chemicals reported third quarter sales of $3.1 billion, down from $3.9 billion in the year-ago period. Strong sales volume in Asia Pacific was more than offset by global pricing pressures in nearly all businesses and ongoing currency headwinds in EMEAI.

The segment reported sales volume growth in the majority of its businesses. Polyurethanes reported volume growth on the startup of a new polyols plant in Thailand and Dow’s broader market participation strategy, coupled with market share gain in EMEAI. Industrial Solutions reported volume declines on weakness in the energy market and a change in a long-term supply arrangement. Chlor-Alkali and Vinyl and Epoxy reported volume gains. The Company successfully completed the Dow Chlorine Products transaction on Oct. 5, 2015, receiving a tax-efficient consideration value of $5 billion.

Operating EBITDA for the segment was $540 million, down from $596 million in the year-ago period – reflecting the impact of divestitures and lower monoethylene glycol (MEG) pricing, which impacted equity earnings.

Equity earnings for the segment were $54 million, down from $80 million in the same quarter last year.

Performance Plastics

Performance Plastics reported third quarter sales of $4.7 billion, down from $5.7 billion in the year-ago period.Volume gains in all geographic areas were more than offset by lower pricing in all businesses and geographic areas, in addition to currency headwindsin EMEAI.

The segment reported sales volume expansion across all businesses. Dow Packaging and Specialty Plastics continued to realize volume growth on demand for high-end, differentiated packaging products and sales into emerging markets, including double-digit gains in Latin America and Greater China. Dow Elastomers reported volume gains, primarily in EMEAI, on continued customer preference for Dow products in the transportation, infrastructure and consumer goods market sectors. Dow Electrical and Telecommunications reported volume gains driven by demand for Dow technologies enabling long-life power cables. The Hydrocarbons and Energy businesses reported volume increases due to increased LPG cracking in North America. Higher asset reliability in the Dow Packaging and Specialty Plastics, Dow Elastomers and Dow Electrical and Telecommunications businesses enabled the segment to set a new production record in the quarter and over the trailing twelve months.

Operating EBITDA for the segment was an all-time quarterly record of $1.3 billion, up 8 percent from $1.2 billion in the year-ago period, due to robust demand in all businesses and margin expansion in EMEAI. Dow Elastomers and Dow Packaging and Specialty Plastics delivered all-time record quarterly operating EBITDA performances.

Equity earnings for the segment were $50 million, down from $64 million in the same quarter last year.

Outlook

Commenting on the Company’s outlook, Liveris said:

"Dow’s three years of consistent earnings growth demonstrates clearly that we have built a portfolio that captures growth where growth exists. In the forthcoming quarters we will continue to see growth and capture that growth in markets such as China, the U.S. and Europe, despite challenging macros in other parts of the world, such as Brazil.

"Our new investments are coming online at exactly the right time: Increased demand will ultimately drive oil prices higher – further boosting Dow’s ability to capture and expand margins. We have purposefully built a structurally hedged portfolio that is proven to perform in many environments, driven by our investments in differentiated technologies and solutions. All of this positions us well to continue to deliver increasing shareholder returns."

Dow will host a live webcast of its third quarter earnings conference call with investors to discuss its results, business outlook and other matters today at 9:00 a.m. ET on www.dow.com.

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