Dow Inc. (DOW) Q2 2012 Earnings Report, Transcript and Summary

Good day, and welcome to the Dow Chemical Company Second Quarter 2012 Earnings Results Conference Call. [Operator Instructions] Also, today's call is being recorded. I would now like to turn the call over to your host, to Doug May, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Corrine. Good morning, everyone, and welcome. As usual, we're making this call available to investors and the media via webcast. This call is the property of the Dow Chemical Company. Any redistribution, retransmission or rebroadcast of this call in any form without Dow's expressed written consent is strictly prohibited. On the call with me today are Andrew Liveris, Dow's Chairman and Chief Executive Officer; Bill Weideman, Executive Vice President and Chief Financial Officer; and David Johnson, Director of Investor Relations. Around 7:00 a.m. this morning, July 26, our earnings release went out on Business Wire and was posted on the Internet on dow.com. We have prepared slides to supplement our comments in this conference call. These slides are posted on our website on the Presentations page of the Investor Relations section and through the link to our webcast. Now, some of our comments today include statements about our expectations for the future. Those expectations involve risks and uncertainties. We can't guarantee the accuracy of any forecasts or estimates, and we do not 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. Additionally, some of our comments today will 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 can be found on our website. And unless we notice otherwise, all comparisons today will be on a year-over-year basis. Sales, volume, price comparisons will exclude divestitures. EBITDA, EBITDA margins and earnings comparisons exclude certain items. The agenda for today's call is on Slide 3. I will now hand it over to Andrew.

Thank you, Doug, and good morning, everyone, and thank you for joining us. If you turn to Slide 4. As we stated during the quarter, the second quarter of 2012 presented a challenging market and operating environment. However, despite these extremely volatile conditions, we continue to tightly manage operations, driving and accelerating a full array of efficiency and cost-reduction measures and delivering cash flow improvements. Global economies have not only been volatile but conditions clearly deteriorated as the quarter progressed. This led to weakening demand and extremely cautious buying sentiment, which in turn, impacted the pricing and volume dynamics, as we indicated throughout the quarter. In addition, the fragile European environment placed significant downward pressure on currency for businesses operating in that region, and Dow was no exception, given our large footprint in the EU. Finally, Dow faced additional headwinds in the quarter, as we experienced an unusually high impact from planned turnaround costs, both within our businesses, as well as at our joint venture partners. This all resulted in the following: Earnings per share of $0.55; a sales decline by 6% led by Western Europe; currency accounted for more than $400 million of that decline; nearly 1/2 of the overall company sales declined on an adjusted basis; volume declined 1%, with price decreasing 5%. On the better news side, we saw continued strength in Agricultural Sciences, which grew volume 10% and delivered record second quarter sales. And we captured volume gains in Performance Plastics, as well as in China. However, on the whole, volume decreased across most operating segments and geographies due to a synchronized global economic slowdown, coupled with cautious buying sentiment seen across most value chains. This global volatility and weakness drove rapidly changing hydrocarbon and commodity costs, which led to declining prices. While feedstock and energy…

Thank you, Andrew. Turning to Slide 6. Adjusted sales decreased 6% to $14.5 billion and EBITDA was nearly $2 billion in the quarter. On a reported basis, earnings were $0.55 per share. This compares with earnings of $0.84 per share in the same quarter last year or adjusted earnings of $0.85 per share. On Slide 7, I want to take a moment to give you additional insight on the key drivers of our operating performance this quarter. Declining feedstock costs were a headline. However, the benefit of falling hydrocarbon prices was largely offset by declining prices and currency headwinds. In addition, as Andrew mentioned, we had a large number of planned turnarounds in the quarter, both within Dow, as well as in our joint ventures. Our operating rate declined 6 percentage points due to lower demand and customer destocking. The good news is that looking forward, the peak turnaround season is behind us so we are well positioned to capture the benefit of continuing favorable feedstock costs going forward. Now, let me turn to volume trends on Slide 8. Overall, volume declined 5% year-over-year or 1% on an adjusted basis due to weak economic conditions and cautious buying sentiment, which occurred through most of our value chains. We did see bright spots in Agricultural Sciences, which benefited from very strong industry fundamentals, as well as Performance Plastics; and Asia-Pacific, where new capacity from our joint venture in Thailand continues to support growing demand in that region. Now, let's take a look at price trends on Slide 9. Price declined 5% in the quarter, with currency accounting for more than half or approximately 3% of the decline. We saw decreases in all geographic areas in most operating segments. Now, turning to our operating segments, starting with Electronic and Functional Materials on…

Thanks, Bill. I would now like to turn outward and take a look at the world we are operating in today to give you a sense of how our company is responding to these increasingly volatile times and delivering, even in the face of these current headwinds. Turn to Slide 15. As you know, Dow's vast presence in end markets and geographies gives us unique and early insight into what is happening around the world. At the end of 2011 and moving into the first quarter of 2012, we said that while we did not see any material improvements in the first quarter, demand growth was expected to gain momentum in the second quarter, with improvements in the back half of 2012. However, moving through the first and second quarter, we saw an accelerated slowdown in most global economies, a slowdown that has weighed heavily on a variety of regions and sectors. In fact, our heat map illustrates our view of the downward shifts in growth expectations, with movements downward outweighing the positive by a ratio of 10:1. Therefore, looking forward, we believe it is unlikely that there will be broad positive developments in the global economy for the second half of 2012. Turn to Slide 16. Europe continues to be an area of major concern as ongoing recessionary conditions now appear to have broader implications across the rest of the world. And this has instilled increased caution among investors and consumers. China's economy has continued to decelerate as European exports suffered. And we will likely linger around the current level until broader measures taken by the government to inspire domestic growth in investment and consumption take hold. And in the United States, improvements in consumer confidence have moderated due to soft employment data and uncertainty in Europe, and slowdown…

Great. Thank you, Andrew. Now, we'll move on to your questions. But first, 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. Corrinne, would you please explain the Q&A procedure?

[Operator Instructions] And we'll take our first question from Vincent Andrews with Morgan Stanley.

Just a question on the Plastics business and the effect of the turnarounds. Was there a situation where you were -- because your volume was up in the quarter despite the turnarounds. Were you selling inventory that you had built, perhaps, at a higher cost in the prior quarter?

Yes, Vincent. That's exactly right. Plus, the turnaround really impacted that business because their lowest cost asset up in the Fort was down for most of the quarter, so robbing us of a lot of margin. And this is a very necessary turnaround. We don't take turnarounds for -- just for the sake of turning around these assets. This was on a very much need to have a turnaround. It's now back in full force, and we'll take advantage of that low-cost position. But definitely, it was something out of high cost inventory.

Is there any way that you can quantify it slightly or just give us a sense of how it should reverse as we move in the third quarter?

Well, it's tens of millions of dollars and it's certainly a big number and a big impact on their margins in Q2.

We'll move on to Jeff Zekauskas with JP Morgan.

Andrew, you've been very positive on the ethylene cycle going forward. Are you also positive on Chlor-Alkali cycle? That is, where do you think we stand in terms of our cyclical position? And I know, Dow Mitsui is bringing on a good amount of Chlor-Alkali capacity, and how do you think that might affect the cycle?

Yes. So ECU, as you know, is a binary conversation and when one's up, the other's down. The housing PVC issue has kept the chlorine margins down. If you're in the direct business of being in the EDC/VC and PVC, which these days, we are not, obviously, we use our corning for our downstream, value-add specialty businesses. So we don't tend to see the cycle in ECU as much as we used to see it. When it manifests itself in our businesses is when some downstream businesses are seeing soft demand and therefore are suffering. And the chain that seems to be reflecting that the most for us these days is our commodity epoxy business. The commodity epoxy business has seen deterioration mostly because of industrial coatings. The construction issue there as well, as well as the decline in wind energy, which has been quite big. So we've seen it mostly in that chain, to answer your question specifically. But on the caustic cycle, caustic has continued solid demand, and we're seeing strength in pulp and paper and water treatment. There is some risk in deteriorating aluminum margins. But the Australian aluminum guys are buying caustic from the U.S. Gulf Coast. So we're going to see, I believe, an extended caustic cycle for a while. But it's the housing issue in the U.S. and the PVC response to that, that's going to be a biggie in terms of both ECU products being, maybe if you like, heading to peak. But until then, I think we're going to see one side of it strong and one side of it weak. The low-cost gas position in the United States should be helpful for exports of chlorine-based commodities.

And then, as my follow-up, it seems that in your discussion of global demand conditions, as far as Dow Chemical goes, you're more pessimistic than you've been in previous calls. Is that fundamentally a change in your view about Europe or China or India or the U.S.? Sort of from a geographic point of view, where has your point of view changed?

Well, I think the turn in April that all of us felt, and Dow, in particular, felt because of our presence, was the infection of Southern Europe into Northern Europe and the German economy in particular. And German consumer sentiment, German buying behavior and German exports were all going downwards. And that hasn't really reversed itself yet, even though they've got in place some policies to loosen money, et cetera, to stimulate demand. I do think that, because that's 1/3 of Dow's business, was a new domino effect on key markets around the world, notably Asia and China. 19% of China's exports go – well, have historically gone to the euro zone. So that domino effect really hit for us. I was in China, in March, May and June, okay. And in fact, in July as well. So that's 4 times in the last 4 months. Every single visit, the customers and the governments, they were seeing a decline. And the decline was a domino effect of Europe. No question about that. So that combination and the spillover effect into the rest of Asia and for that matter, Brazil and the emerging world, is what we saw through the quarter. The reversal of that, Jeff, is very instructive. In our view, the reversal is probably back-end loaded and mostly, China-driven with stimuli that they are looking at now, but it will take time. China will not snap back. It will be a late-this-year type reversal to get their growth rates back into the 8% range that they need to have. They are probably running at very low numbers right now, a 3%, 4%, 5% number at best.

Moving on to the Alembic Global, Hassan Ahmed.

Quick question around just the CapEx plans. Obviously, new world order we're talking about now, and things seem quite uncertain. Does that sort of change some of your CapEx-related plans, being they are associated with some of the greenfield stuff that you've announced?

Look, the short answer is we are definitely adjusting capital and off balance sheet via IE-impacted expenditures, but not the key ones. Not the low-cost reserve ones, not the U.S. Gulf Coast, not the Saudi project, which is mostly funded, by the way, which we've said before. So in essence, we are staying true to the growth programs that deliver, that are highly accretive and will make a lot of money and speak to the cycle that we still believe is out there in the '13, '14 timeframe, and will continue on into '15 for ethylene and, for that matter, propylene derivatives with the propane dehydro back integration. We will see positive margin improvement in key businesses like Performance Materials when we do the back integration because the propane point I made, the reality is, we’re titrating back CapEx on businesses that don't need the capacity in a slowing global environment. And every one of the businesses go through a review. Those reviews now are every 2 weeks. And we are, basically, being driven by the reversal of what we call the macros from the potential for normalized growth to constrained growth to, in some cases, like Europe, recession.

Got it, super. And another one, if I may. Just on the Performance Plastic side, and specifically, as it pertains to Europe, was a bit of a choppy quarter. Obviously, on the surface you look at product margins and feedstock costs were coming down. So on a product level, the margin seemed to have been expanding, but obviously, volume weakness was there as well. So could you just sort of comment on that as it relates to what the results look like relative to Q1?

Look, European margin compression, you remember through the quarter, oil went down and naphtha went down, and oil went up and naphtha snapped back very fast. And so there was huge margin compression and lack of price momentum. And so really, lots of price and increase of inputs created some margin compression, but we did see some improvement early in the quarter. So it was really -- pricing hasn't kept up with the input costs going up. And I think that's what we've seen in Europe. But actually, interestingly enough, Western Europe is better than it was before. And I think that speaks to, really, our feedstock flexibility. That speaks to the fact that we are lower on the – on the slide I showed, we are lower on the cash cut curve than our competitors in Western Europe and therefor, did better.

So, just a final point on that. So better than Q1, when you said before? Q1 crop?

Yes, exactly.

Moving on to the Bob Koort with Goldman Sachs.

Andrew, I was wondering if you could talk -- you mentioned the deferral of some of these targets, but not the elimination. Do you start to run in, at some point, with the problem, specifically around ethylene and global operating rates, that if demand is weak enough, long enough, then we'll start to get closer to the beginning of these grassroots expansion? I know Exxon this morning talked about filing their permits. You guys have talked about a 2017 startup. Do we risk not getting to a 90% global operating rate in ethylene before these plants start?

Yes. To do that, Bob -- it's a good question. To do that, you almost have to feel that this world of ours is going to be recessionary for the next 3 to 5 years. And no one's saying that. Certainly, we're not saying that. There is demand reduction, no question. I think the cycle pickup that we were hoping for or at least planning from the previous numbers prior to this correction, would have been 2013. It's probably more like into 2013, 2014 now. They’re still not butting up against 2017, to answer your question. By the way, you're making the assumption that all of these will, in fact, be permitted fast and come up in the 2016, 2017 timeframe. There's 2 dynamics that will play. One, they won't be as fast as that there, based on permits; based on the slowdown of the global economy that we're now seeing. Plus, the quick question Hassan added. There will people going out of business on negative cash margins as the world economy starts to pick up. But Europe continues its demand construction, they'll start shutting down. In fact, some shutdowns will be helpful to the cycle picking up faster than maybe I'm currently predicting. But no, I don't think there's any problems that's going to butt up against the lost of the peak based on the capacity that you talked about, coming on in 2017.

And on that shutdown point, I thought the ethylene cash curve you provided was quite interesting. And I was a little surprised there wasn't a little bit more dealt between your Europe operations and broadly, in Europe. I think you guys have expressed in the past that there was some need for more global shutdowns. Are any of your assets at risk there? And secondly, the vertical part of that curve, will we ever see some of those units shut down, do you think?

Well, I mean if your previous question -- and the way I handle it, said if we're wrong; if we're going to see a world that's going to go into a recession for 2 or 3 years based on Europe, and based on Europe not having a fix, then they will be under pressure and we believe they will shut down just like Northeast Asians have shut down, Japanese in particular, Koreans, have shut down. So there has been some shutdowns in Europe. And that's a steep part of that curve, I think you will see it if this protracts itself beyond the 12 to 24 months that we're talking about. However, to your other point, we are more differentiated than that scale shows. I think it's probably just the law of our charts. I mean to answer your point, our propane condensate capability there does give us a better advantage than what that chart is showing you.

Moving onto Jefferies with Laurence Alexander.

I just want to take that -- your follow-on to the CapEx question from a different angle. As you talk with your customers, do you get the impression that the culture around capital spending has changed and it's going to be more volatile the way we've seen people be more -- be quicker to swing working capital when they see the first sign of a slowdown? Or are people saying the volatility is here to stay? If anything, they're going to stick with the capital spending longer in order to sort of plan for across the cycle rather than you getting whips-odd [ph]. What's your impression of how people are reacting to this?

Yes, there's no one good answer to that question. It's a fairly large one in the sense of the inventory game. And people keeping working capital while shadowing price declines and basically playing that game. One of the big impacts for our result in Q2, that no one had in their results, is we build up inventory ahead of our turnarounds off a high cost base. And clearly, we could -- when we were selling, we were selling at a high cost inventory in a declining price environment so we had margin squeeze. But customers are quite attuned to that. And they understand when prices are going down, they'll stop buying, so it was a double whammy. And that really, was in essence, them playing the working capital game. Of course, you can't do that with long cycle investments, so that's irrelevant. I mean, once you go beyond 10% to 15% on the CapEx cost curve, it costs you real money to stop. So you will keep going. So it plays into Bob Koort's question, at the end of the day, once you're permitted, once you have your engineering designs and once you have some degree of construction going, then, it costs you a lot of money to stop or slow down. So anything that was very big CapEx-related won't be adjusted much in this sort of environment. But the volatility of working capital, we believe, is here to stay, and the lack of clarity in the value chains is very difficult to get it right by quarter, as I just indicated with our Q2.

And does that imply that you will then, also be more stringent to your -- do you think the industry will be more stringent about cutting capacity at the high end of the chain?

Yes, I do so -- I think so. The previous question, we've seen 3 million tonnes out in the last several years. The one thing we should say is that since '08, '09, we haven't had a normal economy, maybe more than a quarter or 2. I vaguely remember it in the first half of last year. So a normal economy globally, where you get the degree of predictability, I do think you won't see that effect. But we haven't had that. And depending on which chain you're in and which pockets you've been in geographically, and where you are on the cost curve, and we've already seen that behavior, where you will see high cost guys go out because of their inability to make sustained margins. Of course, if your ownership is state-owned, if your ownership is the private equity world, you will have different pressure points than those of us in the public markets. And I think that's a part of the issue that state-owneds are much slower to reflect economic realities, unless fundamentally, there's an opening up to the public markets. And by the way, I'm seeing more of that in China. The state-owneds are becoming more and more like public market companies as witnessed by their M&A activities here in North America.

Moving on to Peter Butler with Glenn Hill Investments.

I think, as usual, the outlook in the second quarter next year is much more important than what happened in the second quarter this year. And just curious on what sort of assumptions Dow is planning on for things like GDP and currency, the euro for instance versus the dollar, and what you're seeing for oil and gas.

Yes. Peter, I think 2013, the way we framed our analytic around the next 12 to 24 months is we're seeing secular demand deceleration that will be Euro-centric and that the global GDP will struggle to get close to 3% in the next 12 to 24 months on a sustained basis. We may see episodic recovery to that. So the numerator in the top line is not going to be aided by GDP macros, et cetera. There will be pockets, and I do believe the developing world, especially China, will create enough domestic demand to keep their growth, as I said earlier, at 8%. So if you say, we've got a 2.5% to 3% global world in the next 24 months, but China and the emerging economies keep growing, you're going to see oil price staying high, $80 to $90 to $100. You're going to have a natural gas advantage here in the United States because frankly, it's substituting all the key uses it should substitute. And without government intervention, it should continue to do that. So it will be advantage to U.S.A. on gas versus oil or ethane versus naphtha. So for us, our feedstock advantage, the U.S. Gulf Coast plus Saudi, plus, the fact that we have got constant capital efficiencies delivering the cost line, so not just feedstock but also our efficiency are big drivers of us preserving our estimates and making sure that we head to our $10 billion over the next few years. The run rate of getting to the minimum -- protecting the minimum, obviously, we are going to be pushing that out a little bit. But frankly, we are saying that the world in 2013, with our interventions, with our feedstock advantage, especially in the United States, that is good, advantaged Dow, even under those macros.

You didn't mention the euro. That could be the headwind. Can you hedge enough or what's your strategy there?

Very simply, the previous question, feedstock advantage for our major assets, the ones in the Netherlands, the ones in Germany, the ones in Spain. So on the feedstock side, we believe euro will continue to have demand weakness. The euro will continue to weaken and therefore, we will have those headwinds. So the only thing we can do, Peter, besides some physical hedging on currency, is continue to work the cost line. So you can continue -- you can expect for us to continue to work cost interventions in an overweight way in Europe versus the rest of the world.

Moving on the Don Carson with Susquehanna Financial.

2 questions. One, just a clarification on the currency exposure. You talk of a $400 million revenue hit, but on your waterfall earnings slide on 7, you don't say how much of that is due to currency. So how much of that $400 million falls to the earnings line? How much are you able to offset with local currency costs? And then a second question. Andrew, we saw a bit of an improvement in volumes in the U.S. Polyethylene chain as we got into June, and it seems to continue on in July. How sustainable do you think this restocking move is? Or is it not that sustainable given your rather dour macroeconomic outlook?

I'll let Bill go first on currency, and I'll get to your second question when he’s done.

Yes, Don, to answer your question on currency. As we mentioned on the revenue line, the total currency impact was about $430 million, which is about 3% of the total 5% decline. From an earnings per share impact, that translates to about $0.08 per share impact this quarter.

And so that's what the cost is already accounted for, right?

Yes, that is on a net after cost, so it’s a $0.08 EPS impact.

And then your question on how we're going into July. Yes. We are seeing -- we had, by the way, a very good volume month end quarter in Performance Plastics and Polyethylene, in general. So our machine being low-cost, got from the market what it needed to get from the market and then some. So I'd say from a demand outlook point of view, that's continuing on into July. It's just all about margins. And as I answered earlier, with the Fort coming back on, that will get a bit of help on margins because of the fact that, that is a low-cost asset. But it all comes down to price and underlying demand. And right now, it's too early to call whether underlying demand is there or just restocking, to answer your question, Don.

Our next question comes from P.J. Juvekar with Citi.

In coatings, the Rohm and Haas acrylics business has been lagging ever since you bought it. And initially, you had the housing downturn, then came the propylene spike. But now, propylene is coming down; your customers are reporting good numbers, the coatings customers, so when do you see a turnaround in this business?

Well, actually, it's a wonderful question in the sense that I can quickly refute your analysis by saying it got nothing to do with the acrylics coatings and protective [ph] coatings business that we bought from Rohm and Haas. That business is actually doing very well and is approaching 20% EBITDA. Actually, through the synergies, through the new innovations, the launch of EVOQUE, et cetera, et cetera, they've done very well. What's dragging that reporting unit down, P.J., is our legacy industrial business at Dow, the epoxy business. As I mentioned in an earlier question, in answering an earlier question, that business is oversupplied right now and is under severe margin pressure. And our business people that are running that are really looking seriously at assets and costs. That business gets reported into industrial coatings into the coatings unit. And so to the extent that I can give you some granularity there, it's that unit that's not performing to satisfaction. We do see construction bottoming out here in the U.S., and actually, the beginning of a recovery. That's very positive for the architectural coatings business, and for that matter, our Dow Building Solutions business. And I think you can continue to see that business grow and perform.

Okay. And secondly, you have this Kuwait arbitration award of $2 billion. Can you tell us what is the mechanism of getting that money? And do you think you could potentially, or could divest any assets in that country to realize the settlement?

Well, I mean, my headline in answering both those questions is crawl, walk, run. We have been very patient. We’ve followed due process and we've been very professional because we have a very positive partnership with PIC and Kuwait. We make a lot of money; they make a lot of money due to that partnership. And the award process was agreed by both sides so we would respect each other's position. We had a disagreement that, of course, has now got a ruling. The next series of steps now is to collect that money with due process. There is due process. Kuwait has filed an application requesting their High Court to ask the tribunal to further consider these damages. That does not suggest, by the way, that there was no breach. It, in fact, reaffirms there was. They're just asking for an examination of due process. That's not unusual. It happens all the time with an award of this size. So somewhere in the fall, we expect the tribunal to issue the final award, which will include, by the way, an assessment of the interest and the fees. And I would say to you, as a consequence of that, we would expect, in the normal course of events, most of these awards of this size, take about 6 to 9 months to see the money arrive. What will we do in terms of use of that money; how will we approach our future in Kuwait? There is no conversation that suggests we don't have a future in Kuwait. We haven't said anything about divesting anything. We like the fact that they make us a high EBITDA business, high income business. Use of cash, exactly to our priorities. We are going to continue to focus on rewarding our shareholder, making our balance sheet exactly where it needs to be, especially in tough economic conditions. We saw good progress on that in the quarter and funding organic growth through our existing resources. No M&A. Very focused on those 3 uses of cash. You can continue to see that focus when that money arrives.

I was just going to say that you didn't mention the preferred share in that use of cash. So I was wondering if you can just comment on that.

Sure. Sure. I mean, that's the balance sheet, and I would say it's included -- but look, Bill and the team have done a great job of paying down debt. We're at 40.4%, but we have the expenses prefers on the balance sheet, that will be expensive to retire prematurely. Having said that, they're very accretive the immediate time you do, do it. And you can rest assure that Bill's very capable financial team is addressing exactly that question.

Yes, P.J., this is Bill. When we talk about delever, we include preferreds in that, in our mindset, around delever.

That will come from John McNulty with Crédit Suisse.

With regard to the cost cuts and the incremental $500 million to your increasing the target to $1.5 billion, can you walk us through the timing of when you can see these going through? And maybe which segments might see the biggest benefits looking out over the next couple of quarters?

Yes, thank you, John. Of the $500 million, $100’s about CapEx and so the rest is cost. It will be -- run rate wise, you can expect that $500 million to be in full force by January. We'll have the full effect – you all are, by the way, seeing in our results already what we've already done. Frankly, the fact that we jumped ahead of the curve in these macros as an insurance policy is paying dividends. We're ahead our $2 billion EBITDA a quarter. That was a very good quarter under the conditions we've just been describing. We had a $700 million plus cash flow quarter. In these conditions, to achieve those results, this is a very different Dow. We can do intelligent interventions and get them to the bottom line quick. You'll see the full impact therefore, of this extra $500 million in 2013. And which businesses? We much -- pretty much spread across most of them, the way we're doing it. A lot of this is going into the fabric of how we leverage across business units so they all get to benefit.

Great. And then just one last follow-up on the Ag business. Clearly, there was a lot of volume introducing growth in that business. The margin seemed a little bit lighter than we would've expected, given kind of some of the big high-margin products that you're seeing. So I guess I'm wondering what may have held them back, whether it's introduction of new products and the cost out of that, or other things that we may not be found thinking about.

I love a question that has the answer embedded in it so exactly what you said. Four major launches, lots of pre-funding of those launches, that's what you're seeing it.

Do you want to make a few comments here to wrap up?

Yes, just a couple points here. So look, a tough quarter. The fact that we had the flexibility and the levers and the ability to manage our way through it, I think, speaks to the strength of our company and the strength of our team. We are really now operating a dramatically increased base cash flow than we were pre-2009. We can deliver our $8 billion. We can get the cash flow. EPS is going to be rough as we go through quarters because there's a lot of moving parts. We're accelerating our interventions, controlling what we can control in a tough market. As we do that, we will perform to your expectations. The market is not giving us a lot. So frankly, we have to take from the market what we can but really intervene. At the end of the day, we've shown that in the quarter. We are going to continue to grow this company with low feedstock investments, the way we're doing it on the Gulf Coast and Sadara, and selective innovation in key growth businesses like agricultural, like electronics, like water, and continue to diversify our way from the more commodity-like businesses. So more to come. Thanks for listening. We appreciate the great support.

Thank you, everyone, for your questions and for joining us this morning. We appreciate the interest in Dow. For your reference, a copy of our prepared comments will be posted on Dow's website later today. This concludes our call, and we look forward to speaking with you through the quarter. Thank you.

And once again, ladies and gentlemen, that does conclude today's conference. We thank you for your participation. Have a great day.