Dow Chemical 3Q15 Earnings Call Notes

Expect ongoing weakness in Ag to continue for the next 1-2 years

“Overall, the ag market continues to be challenged with high inventory levels and currency pressures, more than offsetting higher volume gains in Europe, Middle East, Africa, India as well as North America. We do expect ongoing weakness to continue over the next 12 to 24 months’

Important to be vertically integrated in polyolefins because its hard to predict where value will be captured

“we want to illustrate the importance overtime of owning the full polyolefin value chain. As you can see, the source of income has shifted overtime. It’s hard to predict, which bucket value will come from in any given period.”

“In the 2002 trough, for example, the ethylene to naphtha spread was high in very weak markets, with some contribution from the oil to gas spread.”…”In the strong markets of 2005, there was virtually no oil to gas spread. In 2009, Dow retained market share and decent trough margins due to product differentiation, while competitors that didn’t own the differentiation or the feedstock flexibility struggled to the brink of insolvency.”…”In 2014, the oil to gas spread was the main driver of margins, but full chain integration and differentiation played an important role…differentiation for Dow is based on unique polymers, catalyst, process and comonomer combinations.”

Polyethylene and elastomer balances are tight today

Integrated polyethylene and elastomer balances are tight today and the outlook indicates these balances will stay tight for at least the next several years. Additional, tightness is likely to come from an industry operating reliability issues, both at the monomer and polymer stages of the value chain.”

Portfolio work has been to exit commodity businesses

“Dow’s portfolio work of these last five years has been to methodically exit commodity cyclical value change, such as those in styrene, butadiene, chlorine and all their derivatives.’

This company is going to be a cash flow machine

“I think the way we should all think about the company is that it’s going to be a cash flow machine these next several years. As you can already see, our cash flows are being boosted substantially.”

People in China are starting to look for different quality products

“if you think about where China is, they’ve exited this heavy industry phase, and it really is all about light industry/consumer. So you think about our materials, whether it’s RO membranes in water, whether it’s our elastomers, whether it’s our architectural paints, where 10 years ago you would sell very low-end paint to a developer who would look to spray an entire building. Today you’ve got people in China who have been in their apartments or their homes for 10 years, they are making the choice, and their value proposition is going to be very different from a developer.”

“This company has delivered”

“This is a company that has delivered on its promises…Those who worried about low oil, look at our results. Those who worried about China going away, look at our results. The results of the company and the consistency of performance enables us, as a Board, and management team to continue to deliver that growth in terms of earnings and cash flow. We are strong cash flow machine, getting stronger back to you.”