Dow reported earnings per share of $2.61, or operating earnings per share of $0.95(1). This compares with Earnings per Share (EPS) of $0.97 in the year-ago period, or operating EPS of $0.91. Certain Items in the quarter primarily reflected a $2.20 per share gain related to the Dow Corning ownership restructure and a $0.27 per share charge for costs associated with the restructuring plan announced in the quarter. The tax rate was impacted by Certain Items. Excluding these, the tax rate was within the Company’s modeling guidance.
Sales were $12.0 billion, down 7% versus the year-ago period primarily driven by lower hydrocarbons and raw material prices and the impact from the Dow Chlorine Products divestiture.
Volume grew 2% on a reported basis and 4% excluding the impact of divestitures and acquisitions, reflecting broad-based, consumer-driven demand with gains across all geographic areas – Asia Pacific (up 7%); Europe, Middle East, Africa and India (EMEAI) (up 4 percent); Latin America (up 4%); and North America (up 3%). Regional highlights included Greater China (up 7%), Europe (up 6%) and the United States (up 4%).
Operating EBITDA(2) increased to $2.5 billion, as gains in Infrastructure Solutions, Consumer Solutions and Performance Plastics more than offset lower equity earnings primarily driven by reduced earnings from the Kuwait joint ventures as well as Sadara start-up expenses.
Operating EBITDA margin(3) improved year-over-year by 160 basis points to 21% – reflecting disciplined margin management, portfolio actions that improved mix toward value-add products and targeted growth markets, as well as other self-help measures. Gains were achieved in Infrastructure Solutions (up 710 basis points), Consumer Solutions (up 540 basis points) and Performance Plastics (up 230 basis points). Agricultural Sciences declined 70 basis points. Performance Materials & Chemicals (down 460 basis points) declined due primarily to lower equity earnings and the impact of prior period divestitures.
Cash flow from operations grew to $2.2 billion in the quarter, up from $1.4 billion in the year-ago period, driven by ongoing disciplined actions to manage working capital as well as higher earnings.
Dow’s focused self-help measures delivered $90 million in productivity savings, bringing the first half contribution to nearly $180 million, tracking well above the 2016 target of $300 million.
The Company completed the ownership restructure of Dow Corning Corporation’s Silicones business on June 1. At full synergy run rate of $500 million – a $100 million increase from the initial target – the transaction is expected to add greater than $1 billion of EBITDA. Dow expects the transaction to be accretive to operating earnings per share, cash flow from operations and free cash flow(4) in the first full year after transaction close.
(1) Operating earnings per share is defined as earnings per share excluding the impact of “Certain Items.” See Supplemental Information at the end of the release for a description of these items, as well as a reconciliation of operating earnings per share to “Earnings per common share – diluted.”
(2) EBITDA is defined as earnings (i.e., “Net Income”) before interest, income taxes, depreciation and amortization. A reconciliation of EBITDA to "Net Income Available for The Dow Chemical Company Common Stockholders" is provided following the Operating Segments table. Operating EBITDA is defined as EBITDA excluding the impact of “Certain Items.”
(3) EBITDA margin is defined as EBITDA as a percentage of reported net sales. Operating EBITDA margin is defined as operating EBITDA as a percentage of reported net sales.
(4) Free cash flow is defined as cash flow from operations less capital expenditures.
(5) “Adjusted Sales” is defined as “Net Sales” adjusted for divestitures and acquisitions.
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