On July 23, Dow announced its second quarter 2020 performance report. The report showed that Dow’s net sales in the second quarter of 2020 were US$8.354 billion, a year-on-year decrease of 24.15%; the company’s second quarter net loss The amount was US$225 million, a year-on-year decrease of 94.18%, and the net profit in the same period last year was US$75 million. This is the company’s first single-quarter loss since it was spun off from the DowDuPont consortium last year and operated independently.
GAAP loss per share was $0.31; operating loss per share was $0.26 and excludes losses from significant items in the quarter, which were primarily Related to integration and spin-off expenses, totaling $0.05 per share.
Net sales were US$8.4 billion, a decrease of 24% from the same period last year. This was due to the severe impact of the new coronavirus (COVID-19) epidemic on performance and the decline in local prices and sales.
Local prices fell 14% compared with the same period last year, mainly reflecting lower global energy prices. Currency changes lowered sales by 1%.
Sales fell 9% compared with the same period last year. Increased demand in food packaging, health and hygiene, home care and pharmaceutical applications was partially offset by weakness in durable goods end markets. It is worth noting that with the restart of China’s economy, the company’s sales in the Asia-Pacific region increased by 3% year-on-year and 13% month-on-month.
Equity losses were US$95 million, compared with US$15 million in the same period last year, mainly due to the continued compression of profits caused by the new coronavirus epidemic, which led to a decline in the performance of the Kuwait joint venture.
GAAP net loss from continuing operations was $217 million. Operating earnings before interest and taxes (EBIT) were $57 million, down from $1.1 billion in the same period last year. Our previously announced expense reduction actions have made progress, mitigating to some extent the margin compression and increase in equity losses.
Cash provided by operating activities (i.e., continuing operations) was $1.6 billion, including the release of $526 million of working capital to manage production to meet demand. Dow increased cash flow from operations by $639 million compared with the same period last year, driven by strong improvements in working capital and a $461 million payment from Olin to reserve ethylene capacity. Capital expenditures were US$273 million and free cash flow was US$1.3 billion, a year-on-year increase of US$836 million. Since the split, the company has been prioritizing cash, which has resulted in a trailing twelve-month cash flow conversion of 110%.
Shareholder dividend return for the quarter was $516 million.
As of quarter-end, total cash and available committed liquidity was approximately $12 billion, including $3.7 billion in cash and equivalents. The company repaid nearly $600 million of debt during the quarter, including the full repayment of previously acquired uncommitted loan facilities, resulting in a $740 million year-to-date net debt improvement. Dow will not have any significant long-term debt maturities until the second half of 2023.
Dow signed a definitive agreement on July 2 to sell its rail infrastructure assets and related equipment at six major North American facilities to Watco, which is expected to Cash proceeds from the project will exceed $310 million by the end of the year.
As a response to further reduce costs and exit less competitive assets to deal with the ongoing impact of the coronavirus pandemic, Dow Chemical will reduce its global workforce by 6% . Currently, Dow Chemical operates 109 manufacturing plants in 31 countries and employs 36,500 people. Based on this calculation, the number of layoffs will be approximately 2,200.
Dow Chemical will further reduce operating expenses, from the previous plan to reduce US$350 million to US$500 million.
In addition, Dow will also launch a restructuring plan with the goal of achieving annual EBITDA earnings of more than US$300 million by the end of 2021.
Dow CEO Jim Fitterling said: “While these are difficult decisions, these measures are necessary to remain competitive as the economic recovery gains momentum.”
However, Jim Fitterling Lin said there were “positive signs” for the U.S. economy in June, supported by China’s economic recovery and “signs of improvement” in the European economy. Data show that Dow Chemical’s trading volume in the Asia-Pacific region increased by 3% year-on-year and 13% month-on-month in the second quarter.
Jim Fitterling said at the above meeting that Dow will not increase capital expenditures until sales and profits return to epidemic levels. Dow expects the company’s revenue in the third quarter of this year to be between US$8.5 billion and US$9 billion.