Good day, and welcome to the Dow Chemical Company's Fourth Quarter 2015 Earnings Results Call. [Operator Instructions] Also today's call is being recorded. I would now like to turn the call over to Neal Sheorey, Vice President of Investor Relations. Please go ahead, sir..

Thank you. Good morning and welcome. I'm Neal Sheorey, Vice President of Investor Relations. As usual, we are making this call available to investors and the media via webcast.

This call is the property of the Dow Chemical Company and any redistribution, retransmission or rebroadcast of this call in any form without Dow's express written consent is strictly prohibited. On the call with me today are Andrew Liveris, Dow's Chairman and Chief Executive Officer; and Howard Ungerleider, Vice Chairman and Chief Financial Officer.

Jim Fitterling, President and Chief Operating Officer is in the room and will be available for Q&A. Jack Broodo, outgoing Vice President of Investor Relations and recently named President of Dow's Feedstocks and Energy business is also with us.

Just before 7:00 AM this morning, February 02, our earnings release went out on Business Wire and was posted on the internet to dow.com. We have prepared slides to supplement our comments in this conference call. These slides are posted on our investor relations financial reporting page. You can also access the slides through the link to our webcast.

Some of our comments today include statements about our expectations for the future. Those expectations involve risks and uncertainties. We cannot guarantee the accuracy of any forecast or estimates and we don't plan to update any forward-looking statements during the quarter.

If you would like more information on the risks involved in forward-looking statements, please see our SEC filings. In addition, some of our comments reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and on our website.

Unless otherwise specified, all comparisons presented today will be on a year-over-year basis. Sales comparisons exclude divestitures and acquisitions. EBITDA, EBITDA margins, return on capital and earnings comparisons exclude certain items.

Some of our comments may also contain statements about our announced agreement to complete our merger of equals with DuPont and the intention to subsequently spin into three independent publicly traded companies.

In connection with this intended transaction, Dow and DuPont have filed and will file materials with the SEC that contain important information and we advise you to read them. These filings are available free of charge from the SEC or Dow or DuPont as applicable. The agenda for today's call is on slide five. I will now turn the call over to Howard..

Thank you Neal and welcome back to investor relations. Good morning everyone. Turning to slide six, our results this quarter and in 2015 reflected the benefits of our continued disciplined approach to execute on our priorities. Dow delivered its 13th consecutive quarter of operating EPS and EBITDA margin growth.

Operating earnings per share increased 9% to $0.93 per share. Volume increased 4% which represents the ninth consecutive quarter of year-over-year growth. This includes 5% growth in our emerging regions led by greater China which was up 10%. Operating EBITDA was $2.4 billion.

Excluding the impact of divestitures operating EBITDA rose more than $100 million versus the same quarter last year. Operating EBITDA margins expanded across all segments to 20.9%, the highest quarterly results since the first quarter of 2005.

During the quarter we also returned $2.7 billion to shareholders through dividends and share repurchases with the closing of our Dow Chlorine Products transaction serving as a significant driver of improvement to capital. We've included a full look back on the greater than $4.8 billion in consideration for the transaction in the appendix.

And finally, at the very end of December Dow received $1.5 billion in pretax proceeds through the sale of its direct ownership interest in MEGlobal to EQUATE. Moving to our full year results, Dow reported operating EPS of $3.47 a share a 12% increase year-over-year. We achieved operating EBITDA of $9.6 billion a new high.

Operating EBITDA margins expanded more than 360 basis points to 19.7% representing the highest level in more than a decade with gains reported in all operating segments reflecting our continued discipline and price volume management. Operating return on capital increased to 12.1%.

Marking three consecutive years of expansion we delivered $7.5 billion of cash flow from operations in a year, $1 billion dollar increase compared to last year and on an operating basis this represents our third consecutive year of record cash flow from operations. We also continue to return significant cash to our shareholders.

In 2015 we returned $4.6 billion through paid dividends and share repurchases and we recently announced another increase to our quarterly dividend to a new historic high.

Additionally, during the year we announced a series of portfolio management milestones which brought our total pretax value from portfolio actions since 2013 to more than $13.5 billion dollars coming in well ahead of both our committed target and timeline.

Moving on to our dashboard of key financial performance metrics on slide seven, these highlights reflect our consistent track record of delivering earnings growth, margin expansion and strong cash flow.

As a reminder, our financial priorities include delivering 3% above the cost of capital, driving 10% EPS growth over the long term, maintaining a capital structure that provides financial flexibility and continuing to increasing reward our owners. And as you see here, we've made significant progress against each one.

In the fourth quarter we reduced our net debt-to-cap to 24.8% from 37.3% in the year ago period and well below our ten-year average of 35.9%. Net debt-to-operating-EBITDA declined to 0.9x versus 1.5x in the same quarter last year and year-over-year total cash and cash equivalents have increased by $2.9 billion.

Further, we returned $2.7 billion to shareholders through paid dividends and share repurchases with $1.5 billion related to the equity redemption from the Dow Chlorine Products transaction and an additional 700 million of stock buybacks in the quarter.

We exited the year with operating return on capital of 12.1% an increase of 130 basis points versus the prior year. Now let's turn to our segment results starting on slide nine.

Ag Sciences reported sales of $1.6 billion in the fourth quarter down from $1.9 billion in the year ago period, impacted by continued lower crop commodity prices, high channel inventories and ongoing currency headwinds.

Operating EBITDA for the segment was essentially flat year-over-year and headwinds from pricing in the divestiture of AgroFresh were offset by the sale of nonstrategic product lines and disciplined productivity actions we drove throughout 2015.

Here, we were among the first movers in the industry to take swift action and reduce our cost structure in response to market headwinds. During the year, sales of our new crop protection products grew 6% and we gained corn market share in the Americas.

Looking ahead to 2016, soft commodity prices are expected to continue with the overall market projected to be down 3% to 5%. In this environment we're focused on continuing to differentiate ourselves with new products as well as continued self-help actions to deliver performance that continues to outpace that of our competitors.

Consumer Solutions on slide 10 achieved an all-time quarterly operating EBITDA record of $296 million. This reflects continued demand in the automotive and semiconductor sectors.

Collectively the businesses in the segment drove cost reductions in line with productivity initiatives and realized margin expansion from demand for innovative customer focused solutions.

Dow Automotive Systems had another strong quarter led by demand for our science and engineering capabilities that improved fuel efficiency, safety and acoustic performance. In this business we're leveraging our technology capabilities to outpace the industry.

For example, in North America we continue to make solid progress with electric vehicle manufacturers where our content per vehicle averages three times that of non-electric vehicles. In Consumer Care volume gains in Asia and EMEAI more than offset a transition in the Americans from powder-based detergent solutions to capsules.

We also saw double-digit volume growth in target pharmaceutical and personal care markets and took action to respond to the weaker industrial markets by closing a less competitive CELLOSIZETM facility in West Virginia.

Dow Electronic Materials expanded EBITDA once again as semiconductor and growth technologies grew faster than the industry driven by our technology differentiation that lowered the cost of ownership for advanced nodes. Looking ahead we see margin improving in our display business driven by our core knowledge and our strength in LED backlight films.

Turning to slide 11, Infrastructure Solutions reported fourth quarter sales of $1.7 billion down from the year ago period as volume gains in nearly all businesses were more than offset by price pressures from lower raw material costs and currency headwinds.

Dow Building and Construction drove margin expansion through strength in construction chemical markets and our FR-63 licensing efforts. Dow Coating Materials grew volume led by industrial coatings. Looking ahead we expect growth in our coatings business to outpace the market due to the commercial launch of five new vinyl acrylic binders.

Performance Monomers remains in an ongoing global trough and we are taking several actions, shutting down 20% of our Deer Park acrylate capacity to reduce our merchant exposure, optimizing our turnaround and structural cost and continuing to explore co-producer supply agreements.

In Energy & Water Solutions, our industry-leading reverse osmosis business saw double-digit growth driven by strong demand. During the quarter our new RO membrane plant in Saudi Arabia also came online and will serve the growing need for water in the Middle East.

Based on the market penetration and customer acceptance of our product we expect to reach capacity on this asset very quickly.

Turning to Performance Materials & Chemicals, fourth quarter sales were down on a year-over-year basis driven primarily by the impact of the split off of Dow Chlorine Products and other divestitures as well as significant price and currency headwinds.

Industrial Solutions reported a volume decline as growth in ethylene glycol sales was more than offset by weakness in the energy sector along with a change in long-term supply arrangement.

Our price volume management kept EBITDA flat in our core business, but that was offset by weakness in energy MEG pricing as well as increased dollar expenses as the site continues to progress startup of the new production units which drove down equity earnings.

We reported another strong quarter in polyurethanes as a result of self-help measures and a shift to a more specialized systems how sales approach, which achieved double-digit sales growth. Additionally, our new polyols facility in Thailand drove share gains and double-digit volume increases in Asia.

Moving to slide 13, our Performance Plastics segment delivered a fourth quarter operating EBITDA record of $1.3 billion driven by steady demand in all businesses and margin expansion in most geographic areas.

Dow Packaging and Specialty Plastics sold a quarterly record polyethylene volume led primarily by double-digit gains in Asia and strong demand for Dow's innovative packaging solutions. In early December the first polyethylene units began production at our Sadara joint venture and first shipments have already been received by our customers.

Dow Elastomers reported double-digit growth in North America on continued customer demand for Dow products in the transportation and infrastructure sectors. Our INFUSE elastomers which are sold into higher-end footwear saw strong volumes in the quarter.

Additionally, an increase in consumer preference for SUVs resulted in higher per vehicle elastomer demand. Dow Electrical and Telecommunications saw double-digit operating EBITDA growth as well. This quarter's business performance continues to be underpinned by ongoing progress in our integration and feedstock flexibility.

For example, Dow Europe produced almost half of its ethylene in 2015 from LPG and we increased our European LPG cracking capability to over 60%. Some additional details on this topic are also in the appendix. Turning to slide 14 let me briefly cover our modeling guidance for the quarter and for 2016.

On a year-over-year basis in 2016 we will have earnings catalysts from a full year of PDH impact and we have two positive drivers that will contribute to the back half of the year, the Dow Corning transaction and our enhancements to ethane cracking capabilities in Louisiana.

In the spirit of continuous improvement we will make further progress on our productivity initiatives to build on the $345 million of savings we delivered in 2015 by targeting an additional and incremental $300 million in 2016. We also see pension expense providing an approximately $250 million tailwind as well.

We do see several headwinds, mainly continued pressure from currency, loss of earnings due to divestitures and soft Ag fundamentals from continued lower crop prices and higher channel inventories. Specifically in the first quarter we see demand fundamentals that continue to favor volume expansion in our targeted sectors.

This will be tempered by higher turnaround activity on a sequential basis as well as lost earnings from our recent portfolio management actions. Finally, we will continue to drive our $5 billion share repurchase program forward.

We expect to deliver $2 billion of share repurchase as of this year as our purchasing window likely opens up following the shareholder vote for the Dow-DuPont transaction. With that, I'll turn it over to Andrew..

Thank you, Howard. If you look at slide 16, you'll see that 2015 in every regard was a transformative year for Dow. We delivered record results amid some ever challenging macroenvironment with 13 consecutive quarters of earnings growth and margin expansion.

In addition to the financial highlights that Howard we made further progress on our productivity goals through harmonizing our work processes, streamlining functional business support and optimizing our asset footprint. We committed to achieve $300 million in 2015 and in fact we have delivered on this goal with $345 million realized.

We completed the first full year operating on Dow's new one instance IT platform. This world-class system represented the single largest implementation of SAP and that is already delivering significant streamlining benefits while also enabling sharper business and geographic insights.

We're delivering on our significant growth project milestones, celebrating first polyethylene product shipped from our Sadara joint venture and starting up the worlds largest on purpose propylene facility which is making smooth and steady progress towards full rates.

And importantly, in a year with these significant operational projects coming online we delivered our best ever EH&S performance. And last, but certainly not least, 2015 was a truly transformative year on the strategic front.

We drove major actions on our joint ventures with the sale of our direct ownership into MEGlobal to EQUATE, the step acquisition of Univation Technologies, and the announced restructuring of the ownership of Dow Corning Silicones business.

We split up Dow Chlorine Products and released further value through our transactions of the AgroFresh, Sodium Borohydride and ANGUS businesses.

And of course in December we announced the signing of a historic transaction with DuPont and we intend to crease three focused industry leaders in agriculture, material science and specialty products releasing tremendous value for our owners.

I will have more to say about our progress here in just a moment If you turn to slide 17, in summary 2015 represents the culmination of actions we have taken over a three-year period to increase cash flow generation, drive self-help measures, enhance the quality of our portfolio, capture growth for the future and increasingly reward our shareholders.

2015 will go down as the most significant year Dow's storied [ph] history and quarter for the exclamation mark on the year. This direction was set by the thorough review of the Dow Board and the Executive Team launched in 2013 to identify clear actions to unlock additional value for our shareholders.

As part of their review we set very focused goals including to grow EPS by 10% per year over the long-term, to enhance our traditional EVA focus, to continue to reduce our debt and to go narrower and deeper in key end markets and divest non-core businesses including Dow's exiting chlorine our original foundational product, all with a relentless focus on shareholder value creation and long-term growth.

We have made significant progress against the strategic roadmap and these actions have delivered impressive financial results and returns to our owners over that that three-year period including $22 billion in cash flow from operations, ROC improvement of 450 basis points from 7.6% to 12.1%, more than $8 billion reduction in net debt and most importantly $12 billion distributed through share repurchases and paid dividends.

Turning to slide 18, these results are also underpinned by our intense focus on driving an EVA culture and performance using our best on our mindset as our key lens and taking actions on multiple fronts, lowering our working capital and asset base through our multiyear productivity actions, most recently our Dow 10.0 streamlining program and our aforementioned world-class IT capabilities, driving synergies through our corporate base further leveraging our functional expertise across the enterprise to increase sales, optimizing purchasing and driving a lean corporate center and regional hubs, capturing growth where growth exists by cross-selling opportunities, maximizing our operating leverage and improving our sales mix.

As a result, over these past three years, our EVA improvement has been significant placing us in the 95th percentile relative to our peers.

Turning to slide 19, to keep this momentum going and build on the performance and portfolio actions of the past three years we've put in place clear earnings growth drivers that are delivering now and will ramp up in the near future. Our multiyear productivity push is already delivering bottom-line results. Our mantra is one of continuous improvement.

We did it in 2015 and we will continue with that same mindset into this year making even more progress towards our goal of $1 billion in savings over three years with 2017 being year three.

We're pleased we exceeded our $300 million productivity target with a $345 million of savings we delivered in 2015 and 2016 we have targeted to save an additional and incremental greater than $300 million.

In fact, we're increasing our headcount reduction target as part of this program by proximately 500 roles bringing the total program headcount reduction to 2200 roles that will be eliminated. Thus far we have reduced just over 1200 roles. Our strategic investments including our U.S.

Gulf Coast and Sadara projects will significantly enhance our go forward earnings profile. These projects are based on strong underlying fundamentals. They deliver bottom line benefits in all scenarios because of their low-cost position and value-add products.

We are pleased with the start-up of these good facilities and we expect several additional units to come online both on the U.S. Gulf Coast and in Saudi Arabia in 2016. Another earnings driver comes from our restructuring on the ownership of Dow Corning which we expect to close in the middle of this year.

This transaction is expected to yield more than $1 billion in additional annual EBITDA at full run rate synergies. Just all these drivers alone approach $4 billion of EBITDA contribution on a run rate basis.

And of course, it is important to remember that we have additional levers in place that will benefit our portfolio depending how market forces develop through the year.

From a cash flow and future earnings potential view, these drivers are indeed powerful, a real booster and our growth profile, expand the potential to serve our customers and release significant value for our shareholders. I will now review our 2016 market outlook and priorities for the year.

So turning to slide 21, we will continued to see growth in the three key markets in which our materials businesses compete; packaging, transportation and construction, all consumer driven and innovation based. These three markets have carried the strength that we saw at the end of 2015 into the first month of 2016.

The global economy continues to be volatile and we see that trend persisting for the near term. However, we also see strong demand from consumers in the U.S. as well is in China and that plays well through our consumer driven portfolio, technologies and narrow and deeper market focus.

From a macro perspective we are in and expect to continue to be in all the supplied energy and agricultural markets. We see low energy prices being a net benefit to the consumer. We do not sell energy. What we produce and sell continues to see tight and tightening supply/demand dynamics.

Our differentiated solutions allow us to drive demand and capture value. And turning to the geographies North America is expected to remain strong. Demand in Europe will continue to improve and Latin America will have mixed returns across the region. We also expect continued growth in China, driven by demand for our consumer targeted solutions.

And finally, in this volatile macro environment, expect us to control what we can control, expect us to improve our productivity, expect us to control cost and expect us to deliver the growth projects we have in place.

Turning to slide 22 and looking ahead, 2016 is primed to be another big year for Dow and our teams are squarely aligned around three clear priorities. Priority one, deliver our 2016 plan despite these volatile macro conditions.

Here you can expect us to continue controlling the things we can control, driving our productivity initiatives, realizing the benefits of our commercialized innovation and executing ongoing price volume discipline.

We will continue to reduce costs and expand margins Two, close the Dow Corning transaction by midyear and deliver the related synergies and three, move swiftly through the key stage gates of the Dow-DuPont transaction. Close MergeCo, realize synergies on accelerated basis and prep the intended spins.

The make-up of the teams and the timeline for the transaction is available is more detail in the appendix. These are the same slides DuPont provided during their earnings call last week. I reiterate Ed’s comments that he made during the call.

We are working on an accelerated timeframe to close the merger and deliver the synergies and the intended spins. The synergy estimates of $3 billion cost and $1 billion growth are indeed a floor not a ceiling. In sum you should expect in 2016 the same resolute focus our Dow team has demonstrated over these past several years.

And speaking about our Dow team, we also announced this morning that Jim Fitterling has been appointed to the position of President and Chief Operating Officer of Dow. Since the announced merger with DuPont, Jim has been and will continue to work closely alongside me in running Dow's operations.

He will play a key role in supporting me to drive the successful completion of the merger and unleashing the full value of the three intended subsequent independent companies. His appointment is extremely well deserved and a reflection of his abilities and a commitment to our company of his 30-plus year career.

Now we anticipate that the entire process to close the merger and set the companies up to be spun will take about a year and a half or two.

I look forward to working with Jim and also with Howard Ungerleider in the office of the CEO over that time period to bring that entire process to a successful conclusion and enable a successful leadership handover to coordinate with my own planned transition out of the company which will occur when we have set up to be a spun off but no later than the end of Q2, 2017.

We will continue to drive our strategic agenda and the transformational steps we are undertaking. We will deliver further productivity gains and cost reductions.

We will innovate and add value for our customers and we will drive and enhance returns for our shareholders and we will deliver this exciting new phase of growth manifested in the creation of Dow-DuPont and its three destination companies. And with that Neal, let’s turn to Q&A..

Thank you, Andrew. Now we will move onto your questions. First, however, I would like to remind you that my comments regarding forward-looking statements and non-GAAP financial measures apply to both, our prepared remarks and the following Q&A.

Levi would you please explain the Q&A procedure?.

Thank you. [Operator Instructions] And we’ll take our first question from Frank Mitsch with Wells Fargo Securities..

Congratulations to go around, of course Mr. Fitterling, congrats Mr. Broodo, congrats Neal, I don’t think I should congratulate you because IR in this day and age is kind of a thankless position [ph], but welcome back into the role. Hey Andrew, obviously….

Nothing for Howard?.

And of course Howard, congratulations on you being you..

Okay, good..

Andrew obviously very impressive results, volumes really jumping off the page here and especially in Asia and China, can you expand upon that and I know that your commentary was rather upbeat on China as well, what exactly is going on for you guys there?.

Well look I’ll give you – thank you Frank for the, all kinds of congratulations commentary. I think this is an exciting time at Dow and the question you’re asking is an indicator of it. We’ve positioned our product mix now for about a decade to be technology driven waiting for China to move to quality products, not quantity products.

So rather than selling commodities and they reprocessing them for exports which is the China engine of yester year, the China engine of today and tomorrow suits our product profile, but we’ve been working a decade to put in place the Shanghai R&D center that you visited is a good example of that.

So we have the right products for China’s current needs.

Jim, did you want to add anything?.

I would say in plastics obviously the higher end of the market for food packaging, what we’re doing in polyurethanes was structures going into automotive and appliances has been big. Electronic materials, we’ve seen a shift to more production into China, so that benefited us as well.

And we continue to focus on all of our value added products moving into the market. So double-digit growth in China and even though automotive is a little bit slower in China, we are still very, very strong in automotive. Our elastomers business as well as our automotive bonding business has been quite exceptional..

And we'll take our next question from David Begleiter with Deutsche Bank..

Thank you, good morning..

Good morning..

Andrew, Howard and Jim lots of moving parts for 2016, can you grow EBITDA in 2016?.

Howard?.

Yes David, good morning. I mean, you know we don’t give earnings guidance. What we try to do with the modeling guidance is talk you through some of the moving parts.

I mean we certainly have the potential to grow our EBITDA, when you look at all the tailwinds whether it’s the volume growth that we expect to continue, whether it’s the productivity self-help which is another $300 million on top of the $345 million that we delivered.

Lower pension expense between $200 million and $300 million, but I would just caution you to look at all the headwinds as well.

We’ve got some headwinds, but clearly PDH is well coming on as a tailwind and Sadara will be a tailwind in Performance Plastics, but it will be a headwind in Performance Materials and Chemicals through the year as both units in PMC continue to get closer to startup in 2016..

And we’ll take our next question from Jeff Zekauskas with JPMorgan..

Hi, good morning..

Good morning..

Hi, in your previous corporate filings, you said that your Texas nine cracker would come on in the first half of 2017 and suddenly the chatter in Houston is that that cracker is running a year late in coming on-stream, is it still on schedule or is it running late?.

Jeff, I’ll give it to Jim to answer..

Jeff that cracker is on schedule to start up in the second quarter of 2017 and when you take a look at the progress that we’ve made vis-à-vis the other competitors or we call it the first wave of production, it’s right on time..

And we’ll go to our next question from Hassan Ahmed with Alembic Global..

Good morning, Andrew..

Good morning..

I just wanted to sort of follow on from the earlier question, you guys are saying that your crackers on stream coming online on time and the like, if I take a look at the 15 or so cracker announcements that have happened in the U.S.

it seems that only three have started construction right? But yet there seems to be this perception that there is going to be this flood of capacity coming on stream in 2017.

Could you broadly give us your view of supply/demand and more specifically of what we should expect ex-Dow in terms of cracker delays?.

Yes, I’ll get Jim to handle that one as well, Hassan..

Yes, Hassan what I would say, we have said since the beginning of this and our long-term experience in the ethylene business is this, half of what’s announced is in play and half of that might come on, on the timeframe that was committed to.

So when you look at what’s in the first wave today, the things that we know, we know that Braskem [ph] has started up experiencing a few problems but have started up. You’ve got three big players ourselves, CPChem and Exxon that are coming in a small cracker with OxyChem. That is our view as of the first wave of capacity that’s coming on.

That is quite a bit I had of anybody else and those were the first ones out of the ground and are going to continue to be the ones you see in the first wave. When the second wave comes is anybody’s guess at this point.

Some people are saying 2018, I think it might even slide into 2019 or 2020 and given the financial conditions there and given things are going on with construction labor, I think that would be a realistic expectation. I don’t expect a tidal wave of new capacity coming on.

We’re well positioned as a first mover in this and in fact I think we’re going to be up before the rest..

And we’ll go to our next question from Vincent Andrews with Morgan Stanley..

Thanks and good morning everyone.

Just wondering if you can give us an update on the list approval from China and I’m also kind of wondering whether you think the delay has anything to do with ChemChina’s interest in acquiring Western assets?.

Yes, just the back end of that, look there is no question China has been very much after GMO technology for a long time, Vincent and it’s not surprising that ChemChina is interested in Syngenta. That is a long held rumor and if indeed the announcement this morning that they are close, there is no shocker there.

I don’t think it’s a correlation, but go ahead Howard on the investor group [ph]..

No, I don’t really have anything new there. I mean we’re continuing to try to work with the Chinese Authorities and the Ministry of Agriculture. We are giving them as much technical information as they’re asking for and we’re very confident in the chemistry and the efficacy for the farming value chain..

Operator, do we have another question?.

Yes, we’ll go next to Steve Byrne with Bank of America..

Yes, thank you.

How much of that double-digit volume growth in Performance Plastics was a reflection of perhaps inventory destocking in the year ago quarter when you had falling oil or conversely did you have more inventory destocking in the fourth quarter with another leg down of oil, just curious about your outlook for operating rates in these next couple of quarters?.

Hi Steve thanks for the question. I don’t think there was any massive destocking that happened in the quarter. We saw strong demand through the quarter and we saw a strong December. We moved product in almost every region of the country.

I'd say a little bit soft maybe in Latin America for the fourth quarter and we see January is starting at a solid pace. So I don’t think it’s a destocking. On our own particular situation we ended up with record low inventories at the end of the year, but last December was also a strong December..

And we’ll go next to Peter Butler with Glen Hill Investments..

Yes, good morning, good morning..

Good morning..

Wall Street analysts are again talking backend loaded year, loaded years for their favorite economy sensitive stocks and wondering how much visibility does Dow have, that you have on the second half in next year, how much confidence do you have in your internal projections?.

Well let’s start with the market side of that question and then we’ll get to our own Peter. Look I think every industrial company, every company out there up is not giving any sort of firmness on any of these years in front of us, that’s not new news.

I think 2016, 2017 even with an election year here in front of us in the United States the macros are very difficult to predict.

What we are seeing though is very strong trend lines which we said in our call, which I think gives us strong views towards our ability to grow earnings, is this notion that the consumer is active in the United States and the consumer is becoming increasingly active in China and then actually this is the beginnings of good spending in Europe.

We do believe low energy price, low oil prices are seeping into the economy and that’s creating a stimulus that actually is of the right kind and I think if that stimulus continues to be what it is short of major tectonic events geopolitically, I think the confidence in the real economy will emerge continually from the consumer.

And frankly that is what we’re seeing in our results, we're seeing it in our product mix which we've been working hard to position to be B2B to C and I think when Jim talked about packaging and plastics and I could say the same about anything, elastomers, our water business, our automotive business.

We’re seeing strong demand in construction chemicals in Western Europe. I think it takes away this notion of back loading. It takes this notion of 13 quarters in a row continuing that trend and that then speaks to the other side of it. Most of our scenario plan this – does these days, we don’t actually say this is the condition.

It's going to be 2.5% GDP and then got from there, none of us do that. We bracket it and then we pivot self-help appropriately and if we have to go down further in cost based on productivity actions because markets don’t manifest themselves, we take out more costs and having an IT platform that is leveraged, we can do that pretty quick.

We can move the cost structure with demand and price volume managed and that’s what you've seen from us. So look, I think we have confidence in our machine continuing to deliver and generate the stats..

And we’ll go next to Aleksey Yefremov with Nomura Securities.

Good morning. Thank you.

I was wondering if you could elaborate on Dow Corning's performance and the outlook for silicones and poly silicon business given that you are about to buyout your partner there?.

Yes, sure Aleksey good morning. Overall when you look at our equity earnings for Dow Corning in the quarter on a reported basis they are actually up year-on-year.

If you strip out some of the certain items there was a one-time gain that they had in the fourth quarter of last year they didn’t recur and then there was some lumpiness in polycrystalline silicon side of the house. But the silicon’s platform has historically grown at 1.5 to 2 times GDP.

They are in attractive, high growth markets that are clearly aligned with the markets that we have said we want to go narrower and deeper in, whether that’s construction, whether that’s automotive, whether that’s packaging, home and personal care or even electronics.

And so, we're very excited about the silicone’s platform and the intent with the transaction on the poly silicon side is to have no economic change in ownership. That will remain a JV between Dow, Corning and Shin-Etsu..

[Operator Instructions] We will take our next question from Arun Viswanathan with RBC Capital markets..

Good morning. Thank you..

Thanks..

I had a couple questions, I guess, I could ask them as one question.

It looks like you guys really hit an inflection point on volume growth in many of your businesses, should we expect that to continue? And similarly on the margin side, you've now had a level, new level of margin, so just to Andrews point that you are able to adjust the cost structure going forward is all of this kind of Dow specific or dependent on the market or again are we going to expect that these levels should continue on the volume and margin side? Thank you..

Jim, you'd like to take that?.

Yes, I’d say Arun, the team has been very, very focused and aligned in all of the businesses and I think you are starting to see that come through in the consecutive quarters of results. If I went through every one of these segments, the teams knows what markets we're going after.

They are well armed with new innovative products from our pipeline that are helping them to pick up market share and so it’s not just moving products with the commodity part of the cycle. They are very targeted on which geographies we want to grow in.

If we had started the quarter we would have thought may be fourth quarter would have been more dominated by emerging markets and more by developed market instead of emerging markets and what we’ve saw - was we saw a strong performance in both.

And so, I think what you’re seeing here is the culmination of just a lot of intense focus since about the middle of 2012 around our top line growth and when you think top line growth for us you should really focus on the volume right now because what’s happened with the oil prices is the thing that shows through in revenue, oil price and currency.

What do you see on volume is sustainable..

We’ll take our next question from Don Carson with Susquehanna Financial..

I just have a couple of questions on Ag what was the underlying performance in Ag? You talked about an asset sale and I know you had an asset sale last year and with the headwinds in South America and 3% to 4% declines, can you grow EBITDA in Ag next year with the cost cuts that you are making..

Howard?.

Yes Don, good morning. So the first question on the operating, underlying operating earnings, so look on average the Ag or Ag business Dow Agro sciences sells between 3 and 5 molecules a year on the crop protection side of the house.

This is in line with the strategic intent where if we see products that are on the tail end of their lifecycle we can add significant value from our science and technology platform. So we did sell a couple of molecules in the fourth quarter.

They were in the range of $50 million to $75 million of EBITDA contribution, so you need to back that out of the segment, but otherwise that was real productivity that really drove that. You remember we were one of the first if not the first Ag player to do a restructuring and that was part of our announcement earlier in 2015.

To your question of whether we can grow EBITDA in 2016 that’s going to be a very tough slog on an operating basis even with productivity considering that, high channel inventories, low crop prices and just lower overall demand. Remember we’re forecasting when we see the market to decline between 3% and 5%. So it’s going to be tough.

Our focus is to continue to deliver the innovations, they'll continued to deliver the growth on the crop protection side and the new products on the seed side and continue to drive productivity to outpace the competition and that’s our focus..

And we’ll go to our next question from Jonas Oxgaard with Bernstein..

Good morning guys..

Good morning..

Good morning. I was also curious about that volume in Performance Plastics because which your cost position I kind of assume that you guys will be selling full out regardless of end market demand so, could you talk to me a little bit through where that volume is coming from, you talk about reliability improvements on end market demand.

I’m assuming someone most also be selling ethylene to Olin, now that are a separate company?.

I think, - it’s a good question I think I you look at our Performance Plastics segment, you also have to bear in mind that we have capacities that are coming there on the elastomers business which is a high value, high margin business which has much more resilience in pricing and also a lot of targeted towards automotive and other consumer goods and high end manufacturing.

When you look at plastics business per se, a very large part of it is predominately food and specialty packaging and that business has continued to grow strong around the world. Obviously, we have some plastics to go into the commodity segments and they continue to be strong as well.

You’ll see a little bit of sales that are going into ethylene to the Olin deal, but that isn’t going to be material to the numbers that are in front of you.

And the other thing you see on the revenue line is revenue looks down pretty dramatically, but when you peel back the byproduct sales of the crackers which are hydrocarbon and energy type of byproducts that have moved with oil more and on a one-to-one relationship, plastics has held up really well based on volume demand in the end markets and we think that that’s going to continue..

And we’ll take our next question from James Sheehan with SunTrust Robinson Humphrey..

Thanks, could you talk about the impacts that you see on polyethylene prices for new capacity coming on in 2016?.

Hi, Jim. Yes, so as I said we ended 2015 with record low inventories and very, very strong sales, record production out of our manufacturing assets and product continuing to shift to higher volumes.

In 2016 most of the new capacity that’s talked about is scheduled to come on at the end of 2016 and our view is a lot of that’s going to slide may be into the next year. Also bear in mind that you have a big turnaround season in the Q2 here in the Gulf Coast which we think will have an impact and we have Sadara coming up in the first quarter.

So I think net-net, we’re poised to take advantage of that situation and when the new capacity does come in, in the second half we think the market will be geared to absorb it at a 2.5% GDP rate supply and demand is imbalanced for 2016..

And we’ll go to our next question from Bob Koort with Goldman Sachs..

Hey good morning, it’s Brian Maguire on for Bob..

Hi Brian..

It’s been a while since I got I guess an update on the earnings contribution from Sadara.

I’m just wondering with all the changes in feedstocks and product prices and global supply/demand balances if you care to make a guess of what the ultimate earnings contribution from Sadara will be and what you would kind of expect to get to that point?.

Howard?.

Yes, hey Brian. Good morning. So I mean, I mentioned earlier I think in the Q&A that when you look at 2016 specifically on the Performance Plastics side, you’re looking at 50 plus or minus million dollar tailwind because those assets have already started. So we got first product out in December.

The mixed feed cracker is going to be coming up and another couple of polyethylene units throughout 2016.

But in PMC, performance materials and chemicals, you’re looking at about $100 million, $200 million headwind because they’re in the really steep part of the S-curve as their assets are being built and finalized in 2016, we’ve got some capacity for PMC not coming on until really the back half of the year.

We still have a view that our long-term average is $500 million split between equity earnings and the commission structure that we’re going to get as we are marketing the product for Sadara outside of the Middle East zone. That is a long-term average and that is after the whole complex has started up.

So that would start to hit those numbers in the post 2018, 2019 timeframe. We still feel really good about the project overall..

And our next question comes from Christopher Parkinson with Credit Suisse..

Perfect, thank you very much.

In credit it is still in the early stages, but on a preliminary basis what do you believe your largest long-term opportunities are for your Ag business post merging with Pioneer is it more product focused within either chemicals or seed or are there more themes within our specific geographies? And also have you heard any preliminary feedback from your R&D team and/or field associates which you particularly find interesting or incremental from your original analysis?.

Thank you for that great question. All I can say Chris is that the last several weeks of team discussions have just amplified and magnified the original pre-announcement of the merger work that was done by the teams. We had over 4000 man hours of combination work and the Ag teams, the two Ag teams were on fire in terms of complementarity.

I mean the absolute hand in glove combination of what we have now seen Jim and Howard and I have done trip out to the [indiscernible] Johnson and seeing the Pioneer capability up close and personnel, it’s first class.

It has incredible technology not just of course in traits delivery mechanisms but it is automated, it is technology rich, it’s got capabilities on the climatic side. And what the Dow Chemistry brings and the Dow traits bring, especially the combination of traits. So we can bring on herbicides and insecticides it is winning hand.

As you know we are the next series of traits coming out in the marketplace. So everyone has always said that this is the greatest combination you could put in the sector and everything we’ve seen since the announcement and the work we’ve done has just doubled down and tripled down.

We cannot be more excited and Indianapolis and there are signs we were down there and the people they were excited because the property has always been a property we talked about in terms of where its destination might be.

It is no secret that Dow never saw itself as the natural owner long-term, but the combination waiting for it to come the way it did was a winning hand and so we will have a lot more to say. You know stemming our holes in the repertoire that we’ll have to address.

But I can’t wait till the merger occurs and this company is set up for them to identify how they’re going to grow with this complementarity..

And we have time for one more question, that question will come from PJ Juvekar with Citi..

Thank you and good morning. Andrew, in your price declines of 19% overall, how much was FX and how much was local price declines? And then across your product chains where are you seeing some most price declines and where do you think you have pricing power? Thank you..

I’ll let Jim take that PJ..

Yes PJ, good question.

In the fourth quarter specifically, you know we had a gain over hydrocarbons and energy costs of about $240 million and then we had some currency headwinds which were the local price declines that you talked about, but net we were up $65 million in the quarter and for the year we had gains of $1.1 billion and net out about $800 million of currency or $300 million of margin expansion.

So I hope that gives you a rough idea.

Howard?.

Yes, PJ just to give you some specific data, at the enterprise level local price versus the same quarter last year was down 14%. If you look at that on an EBITDA or an EPS impact it was between, well it was $0.11 roughly on the EPS line and just north of $160 million on the EBITDA line versus same quarter last year in terms of impact on currency..

And that concludes today's question-and-answer session. Mr. Sheorey, at this time I will turn the conference back to you for any additional or closing remarks..

Thanks Levi.

Andrew, before we close the call would you like to make any final comments?.

Yes, I think I said it in my opening script, I can't be proud of the Dow team, 2015 was the year that we pivoted to our future. We've demonstrated 13 quarters in a row 9 quarters of earnings beat. We had revenue beat in the quarter. It was an exclamation mark. That's the result Howard and Jim and I working hand in glove with our team.

Our business leaders have put in place the enterprise of the future.

Yet, if you look at the transformative deals that we put in place for that future, whether it be the Kuwait pivot, whether it be the Chlorine close, whether it be the AgroFresh sale, whether it be of course the Dow Corning restructuring and ultimately the Dow-DuPont merger that created history, great companies, you can't put a quarter like that together or a year like that together unless you have a gun team aligned to shareholder value focused on margins, focused on cost, focused on productivity and growing that top line based on quality share.

I'm very proud of Jim and Howard working closely with me. Jim congratulations on your next step here. Howard and Jim and I are very committed to keep delivering for you as shareholders. Just keep watching this space. Our headlines will only be about performance and we can't wait till we get to the merger and then the three spins that we will create.

Thank you, Neal..

Thank you, Andrew and thank you everyone for your questions. As always we appreciate your interest in the Dow Chemical Company. For your reference a copy of our prepared remarks will be posted on Dow's website later today. This concludes our call for today. We look forward to speaking with you again soon. Thank you..