Dow Inc. (DOW) Q1 2011 Earnings Report, Transcript and Summary

Good day, and welcome to The Dow Chemical Company's First Quarter 2011 Earnings Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Doug May, Vice President of Investor Relations. Please go ahead, sir.

Thanks, John. Good morning, everyone, and welcome. As usual, we're making this call available to investors and the media via the webcast. This call is property of The Dow Chemical Company. Any redistribution, retransmission or rebroadcast of this call in any form without Dow's 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; Howard Ungerleider, outgoing Vice President of Investor Relations; and David Johnson, Director of Investor Relations. Around 6:30 this morning, April 28, 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 on 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. As you know, some of our comments today may include statements about expectations for the future. Those expectations involve risks and uncertainties. We can't guarantee the accuracy of any forecasts or estimates, and we don't plan to update any forward-looking statements during the quarter. If you'd 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 of 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 will exclude recent divestitures, and earnings comparisons will exclude certain items. Our earnings release as well as recent SEC filings are available on the Internet at dow.com. The agenda for today's call is on Slide 3. I will now hand it over to Andrew Liveris.

Thank you, Doug, and welcome aboard. Good morning, everyone, and thank you for joining us. If you take a look at Slide 4, you'll see that this quarter was a breakout quarter for Dow. Our results clearly demonstrate our accelerating momentum and our discipline, determined focus on execution. We are firmly on our performance trajectory. A fact you can see across multiple fronts and most importantly by our robust top and bottom line growth. Earnings per share were up substantially, nearly double the year-ago period. We delivered EBITDA of $2.4 billion, representing the second highest result in our company's long history. And once again, we delivered significant margin expansion with Coatings and Infrastructure, and Performance Products in particular achieving significant margin gains. In fact, in Performance Products, we achieved year-over-year margin expansion in every business. This segment expanded margins by more than 500 basis points and also drove margins higher sequentially. And also our Chemicals and Energy and our Plastics segments benefited from our positive U.S. Gulf Coast speed stock and energy fundamentals. These strong results were also fueled by record sales in EBITDA in Health and Agricultural Sciences, another quarter of strong performance from Electronic and Specialty Materials, as well as broad-based volume growth and rigorous price management across our portfolio. Our results illustrate that we did exactly what we said we would do even in the face of headwinds, notably the high and volatile feedstock costs. We are focused, and we executed. And speaking of execution, we also delivered against another key priority mainly continuing to enhance our financial flexibility. We told you we will further strengthen our balance sheet and to that end, in the first quarter, we paid down $2.5 billion in high coupon debt, which is immediately accretive to earnings. We maintained our focus on…

Thank you, Andrew. Before I begin, I'd like to remind you that this information is on a year-over-year basis and that sales comparisons exclude divestitures and earnings comparisons exclude certain items unless otherwise noted. Starting on Slide 5. Our earnings were $0.82 per share excluding certain items, which totaled $0.28 in the quarter. $0.26 of these certain items were related to our proactive retirement of high coupon debt in the quarter. On a reported basis, earnings were $0.54 per share. Now let me turn to volume and price trends. As you can see on Slide 6, we experienced demand growth in every operating segment in every geographic area. We saw particular strength in Electronics and Specialty Materials and Health and Ag, both of which were up double digits. Geographic growth was led by Europe, Middle East and Africa, as well as Asia-Pacific. And from an emerging geography perspective, demand growth was led by Eastern Europe, up 13%; and the emerging regions in Asia-Pacific, which were up 11%. Moving to price on Slide 7. Andrew mentioned our disciplined focus on price volume management. Our discipline in this area more than offset a $700 million increase in purchase feedstock energy costs. This enabled us to drive solid margin expansion across most of our operating segments. Now I'd like to turn and review each of our operating segments, starting with Electronic and Specialty Materials on Slide 8. This segment experienced broad-based volume growth, driven by strong demand in both Display Technologies and Growth Technologies. Specialty Materials reported demand growth in all geographies. Current quarter results were slightly impacted by the tsunami in Japan, which flooded our liquid separation facility. As a result, we wrote down $22 million of damaged property in inventory in the quarter. Although we continue to monitor and assess the…

Thanks, Bill. If you turn to Slide 12. As we power our way to our new earnings profile, let me describe for you some catalysts that we consider newfound tailwinds that will drive our earnings trajectory further. This is, in essence, the power of a transformed Dow, one that continues to execute against its transformational agenda. We delivered a tremendous 2010, and we're now following that with a strong first quarter in 2011 that puts us well on our way toward our near term goal of $10 billion in annual EBITDA. The following strategic catalysts will help drive our growth further: The direct result of our team's efforts to unlock additional value for our shareholders and strengthen our bottom line; a renewed stronger portfolio, integration strength and feedstock advantage that is second to none in the industry, especially in the United States and Canada; strong growth in the emerging regions of the world; an accelerating innovation pipeline; further enhanced financial flexibility; and an intense focus on productivity and efficiency drive that we will provide more details on in the near future. Turning to Slide 13. Central to our transformation is our renewed portfolio and the improvements we have delivered over these last several years to power our growth moving forward. Clearly, our Advanced Materials and AgroSciences divisions are large platforms of growth with robust strategies and methods in place to drive this growth. But also compelling are the actions we have taken in our Basics and Performance businesses trimming non-core assets, combining certain businesses to capture synergies, looking for opportunities to partner and having strong leadership in place. As a result, we have fundamentally redesigned these divisions by significantly shifting their mix towards performance and downstream businesses. Take for example our chemicals footprint, where we have -- which we have…

Thank you, Andrew. Now we move to 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 following Q&A. John, would you please explain the Q&A process?

[Operator Instructions] And we will take our first question from John McNulty with Credit Suisse.

Question on the Performance and Specialty businesses because margins clearly saw some pretty big pickups year-over-year and even in some cases, sequentially, and I guess I'm wondering with the recent kind of very recent spike in some of the raw materials, are these sustainable type levels? Is this the right basic kind of think about going forward, or do we take a step back before we step forward? And then as a follow-up on the electronics margins, even backing out I guess the one-time issues tied in Japan, it seems like the margins were maybe a little bit softer than they've been over the last few quarters and I guess I'm wondering what's driving that and how to think about that going forward.

I'll let -- John, let Bill answer the second question. Let me go at the first. You remember from our Investor Day in New York 18 months ago, we laid out our road map and you may remember that in performance, the margin expansion in Performance Products, Performance Systems businesses was clearly geared towards margin expansion of the growth kind, in other words, price volume management as the economy recovered. So we're going back to where we were in key businesses like urethanes, epoxies. And of course, what also has happened is some resulting tightness in the chain, which has come around through a capacity rationalizations across the downturn and no new builds. What's going on is what we said would go on, which is margin expansion even though it's not linear, even though quarter-to-quarter you'll get variability because hydrocarbon and energy costs don't go up in a straight line. The trajectory of margin expansion is what we're firmly on in the performance businesses. And if you look at prerecession volumes and you look at where Performance Systems, Coatings and Infrastructure if you like and even Electronic and Specialty Materials are, with the exception of Electronic and Specialty Materials, the other 3 segments are still behind their prerecession volumes. So there's still room for growth. We still see room for margin expansion. And yes, there is cost push, but we have demonstrated now several quarters in a row in those businesses that we can manage our margins against price volume around the regions of the world so we can get continual margin expansion. Bill, why don't you take on the Electronic Specialty Materials question?

Sure, John. A couple of things. Yes, if you look year-over-year, the combined Electronic and Specialty Materials EBITDA is down $24 million as you know, but there's really 2 key things impacting that. One is, as I highlighted in my comments, the Japan impact was approximately $20 million. In addition, if you look at the same quarter last year, we had a favorable tax adjustment on Dow Corning of $22 million. And so year-over-year, that impacted Dow Corning's comparison, which is included in that segment. So actually if you exclude those 2 kind of one-time items, if you will, then actually our EBITDA is up. Also if you adjust those, our actual EBITDA margins are close to 30%. So those 2 items impacted comparison versus a year ago. And to add to Andrew's comment, I would tell you and also comments on that I made in my comments, we got strong pricing momentum going into the second quarter, both in our Basic and our Performance businesses, so.

John, this is Howard. The only other point on Electronic Materials was that they expanded margins both sequentially and versus same quarter last year. And on an EBITDA basis versus the fourth quarter, which is typically one of the strongest quarters between Q3, Q4, Q1 EBITDA in Electronic Materials was also up. So we don't see really weakness in Electronic Materials. It was all in Specialty Materials because of the reasons, the one-time reasons that Bill outlined.

Moving on, we'll take our next question from Bob Koort with Goldman Sachs.

Andrew, can you help me a little bit on the investments you're making upstream now? It sounds like maybe it's not going to be as asset light as we might have perceived 18 or 24 months ago, if you're building Ethylene plants and PDH units maybe investing in Saudi. So has there been a change of heart there or how do you calibrate those actions with an asset light approach?

It's always an interesting discussion. I had in my remarks how sometimes people get confused about what's asset light and what's not asset light. One thing that I said in my remarks is specialty chemical companies who have integration in the building blocks such as propylene oxide, acrylic acid, such as Ethylene Oxide all the key building blocks, epichlorohydrin, really you need that integration to make money in the downstream. So the way we set up the current Dow is Performance Products in particular has a lot of these building blocks and a lot of them are propylene derivatives, in fact, most of them. When we made the Rohm and Haas acquisition, it's very clear to us that back integration of propylene was key. We invested actually -- I'm not sure if you followed this -- over $500 million in feedstock flexibility in our U.S. Gulf Coast assets over these last 5 years already. We accelerated those increase with the PetroLogistics deal, and now what we're doing is one more time accelerating our back integration so we do not have propylene buy. We currently buy 50% of our U.S. propylene. That's not sustainable. The propane advantage, the advantage is moving to propane not propylene, and that's a whole dynamic I could get it into it if you wish on some other question. But the propane dynamic is what we're now taking advantage of. The Ethylene dynamic is also key. We have Specialty Elastomers, Wire & Cable, we have our Solution Polyethylene packaging business. We have a lot of our Performance Plastics businesses, our EO derivatives that really need low cost ethylene advantage versus if you like market price ethylene. We can't continue to be a buyer of ethylene for those downstream businesses. So these first tranches are just completing our back integration. The second tranche, the big cracker on ethylene, the 2017 one, is for the growth. We believe the U.S. is entering a growth phase for performance businesses. And to support our Advanced Materials business and our Performance businesses, we believe we need to back integrate. So now do we do equity light, asset light on that cracker? We'd be open to conversations. If people want to come to us and say we'd like to transfer a commodity piece just like we did with Shintech -- excuse me, with Mitsui on the Chlor-Alkali deal on chlorine. They've taken the commodity piece with VCM. We'd be quite happy to do that. But frankly, all of our expansions are all for our downstream performance businesses here in North America in U.S. On top of that, we have large network of pipelines, a current capability on storage. We have very low cost increments here in the United States, and this will go straight to our bottom line.

Great. And then you guys provide the heat map on Slide 20, which is really helpful. I think you guys have an interesting and unique perspective globally and maybe it's getting too fine tuned here, but I noticed you moved European construction to a positive attribution here, positive description. Can you give us a little more color on what might be going right in European construction?

Yes. I mean, fundamentally, we really have a tale of two Europes and for us, we're very strong and large footprint in Germany and France and the Rohm and Haas acquisition also does big in France. And frankly, Germany and France are doing great in the construction sector is showing a rebound, and there is stimulus around the construction still. And we see the right sort of programs there continuing. We see a little bit of spillover from our assets being able to also run at capacity by selling into Eastern Europe and Russia. Russia was very strong for us in the quarter. Russian growth is very, very strong in the building construction area. And really what we're seeing there is rigid insulation panels, some type of construction required in Russia on rigid insulation panels that our PU business can provide. So that's really the way we see Europe in terms of building construction why it moved.

Great. Thank you.

And we'll move on to our next question from Andy Cash with UBS.

My question is about moving the Ethylene from Marcellus. We're hearing plans are being made to move into the Philly area then by ship to the Gulf Coast. So if you assume that [indiscernible] approve the replugging of NGL ships to transport the ethane and looking at the costs, we're hearing maybe in the mid-teen cents per gallon, what sort of advantage do you think you guys would have over -- now given the volume that you guys will be using, what sort of advantage might you have over some of the just generic buyers of ethane on the Gulf Coast?

I mean, firstly, as you saw in the announcement, we have the MOU with range and Marcellus coming into play on the U.S. Gulf Coast is clearly the big announcement we made. I mean, in essence, what you should read in this announcement is after 6 to 9 months of work, the Marcellus NGLs, our use of them, the market making aspect of that in the U.S. Gulf Coast, we believe our infrastructure down the U.S. Gulf Coast, all the capacity I talked about on the previous question, is really why we want the Marcellus NGLs down that way. And our suppliers are working with us on the most cost competitive way of getting down there. There's 2 choices. You talked about marine. That's clearly one, but there's also our pipeline choice. And clearly both of those will be evaluated working with us as an off tanker or even as a small participant, it depends. We are looking at any economic model that lowers the cost of Dow. Now clearly, the big question you ask is, is this all going to be -- advantage Dow on cost? I will say, Y-E-S. We are doing this to be advantaged in our upstream clearly. Now we've got a lot of confidential agreements and negotiations going on. You can expect us to be very much a Dow Chemical in the way we get back integration like we've done in Argentina, like we've done in Canada and like we've done in the United States before. And that will mean that we will get the natural gas number linked to the ethane number and the propane number in some way that will make an advantage on the downside and make an advantage on the upside if the oil to gas arbitrage stays where it is, which we believe it will for some years to come. Our guys are working on it, and the only other piece of information I'll give you is these are all very high DCO [ph] projects.

Okay, it sounds very flexible. Now a question on the operating rate for the quarter. I think you guys said 83% was the average. I was just curious. What impact the unplanned outages may have had? And was EQUATE in that 83%? And if not, how is EQUATE doing now?

Go ahead, Bill.

Yes. Right. The reported operating rate was 83%. The planned and couple of unplanned outages we had, had an impact of about 3 percentage points. So if you adjust for those, our operating rate would've been closer to 86%. And no, the answer to your question on EQUATE, no, that is not factored into our operating rate because it's not, in fact, consolidated.

And how is it running now?

It's running fine.

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

Andrew, could you break out though the impact of phenol, Polyurethanes, epoxies on the year-over-year numbers, your year-over-year growth in EBITDA?

In EBITDA, we don't tend to do that. I'm looking over at 2 IR directors here on the phone call which is really kind of doubling up on you, Dave. But we don't intend to break down to that level but, look, the price increases on phenol chain, the Epoxy LER itself, the acrylic esters was all double digit. The Performance Products total was 530 basis points. And you can assume that between phenol acrylics and also performance monomers in general like butanol, they all went up. What you got on phenol is the Cumene supply issue. I mean, Cumene has been short. We're a big producer, so we can capture all that and capture it as chain. But what you're seeing also -- by the way, I didn't answer this in the first question on Performance Products. This is the result of about a couple of years of work for the right size of footprint in key parts of the world to get our tight operations up and running, to get us access to the market in Asia but also epoxy operations in Asia feeding the Electronics business over there. So clearly, it's not just because of cost push. It's also repositioning of the businesses in particular in the urethanes, acrylics and epoxy chain.

And lastly, just on the arbitration, has that been delayed for a midyear resolution?

Well, I'm the last to tell you how to predict court systems. I'm sure you have your own views. We say late in the year because we just basically are allowing the good tribunal and the good judges over there to take the time they need to take. And we are just saying later this year, because what we now know after the arbitration evidence was submitted, because we didn't know that until obviously this last month, that clearly, the time frame is the time frame that they set based on when they do their readings, their hearings and then the ultimate final award. So we are saying fourth quarter. But it's very clear, I'll say it, I've said it many times. I'll say it again. It's very clear that we were wronged, and that the contracts are very clear.

And we will now take our next question from Frank Mitsch with BB&T Capital Markets.

I'm trying to understand some math here. So your operating rates were 83%, you had 3% downtime, so we should think about that as 86% versus last year 83%. Volumes were up 8%. So did you guys add something like 5% to your capacity year-over-year?

Well, okay, so the way this all works is that you've got new capacity coming on. That's the first point, Thailand. I mentioned in my remarks that the cracker Polyethylene in particular is now the full year effect in the quarter. So that's quarter-on-quarter, year-on-year comparisons a big add. We've also got the Specialty Elastomers that kicked in during the quarter. We've also got sales to Styron. We've also got capacity release from the cost synergies. So when we put the 2 companies together, we've improved the productivity of the assets from Rohm and Haas. That's particularly notable at the biggest asset, Deer Park. You may recall last year we had an issue. We shut it down. That Deer Park is running very, very well and at higher rates. And so if that all adds up to your math, Frank, I'll accept your math. But it's basically yes, we have more to sell.

Also, Frank, let me just add a comment there. So as I mentioned, excluding turnaround, we're at 86% but you need to do the same thing versus the same period a year ago. So same period a year ago, our reported operating rate was 81% and adjusted for turnarounds same quarter a year ago, it would have been 84% so where you're doing apples-to-apples you need to compare the 86% to 84%.

I apologize. I thought it read someplace that it was flat year-over-year. I might be mistaken there. And just on whole capacity situation, obviously Dow had been running CapEx below D&A. With these most recent announcements that you put forth, how should we think about your capital spending versus D&A in the near and in the long term?

Yes, I think, Frank, to answer that question I think we kind of mentioned in the announcement adding the flexibility we're talking about starting up St. Charles operations, although we haven't given specific numbers, those our incremental capital projects for us so you could expect our capital spending to go up. But it -- we believe we'll be able to balance that within our existing capital plan. So for this year, our capital budget is $2.4 billion, and these projects can be handled within that sort of number. As we get towards end of the year, we'll give you number for 2012. But essentially not a significant change.

All right, terrific. And then lastly, you've previously announced the shutdowns of your VCM capacity to make room for others entering into that market. And what are your thoughts on your Chlor-Alkali footprint? Any changes that are going to go on there?

Yes, and Howard's looking at me saying you got a third question in there, Frank. So you're getting a special favor here. Look, we can take it offline but we're not a VCM investor. We're a Chlor-Alkali investor. We're a Chlor-Alkali investor for our downstream strategy therefore is why we would do Chlor-Alkali. We clearly keep to look at partners who can take the chlorine for VCM like we have with Shintech, like we have with Mitsui and that will be continuing our strategy, which speaks to Bob's question around equity light. Right back at the commodity part of it, we will be looking for partners continually either through equity or synthetically.

And we'll now move on to our next question from P.J. Juvekar with Citi.

Can you talk about your European ethylene business and what's your outlook there given high net of prices but also higher core product prices?

Yes, so obviously, the crackers we have in Europe as you just said, liquids exposed clearly as a consequence to that, the diversification, the [indiscernible] cracker there doesn't speak to ethane but it does speak to condensate and some butane. So that's how we manage, if you like, the footprint. Obviously, feeding ethane, that would be very difficult to do given the European gas situation. So we are getting margins better than expected. Mostly because demand has been solid. Prices have moved up pretty well. You may have seen that in the breakdown of the results. But clearly, naphtha is creating a pinch, and so there is a cost push based on demand. The demand is really driven by what I said earlier, Germany and Eastern Europe, Russia. And in particular for our Dow Central Germany cracker in BUNA. And over the years, what we're going to keep doing there is continue to find ways to bring lower cost feedstocks into play, but it will be mainly of the LPG kind, P.J. If you look at Asia and naphtha, and you look at what's going on with naphtha crackers, they had become clearly the lowest margin, highest cost jurisdiction with Europe being a close second. But Asia at its pinch points right now, really the ethylene naphtha trough is here for those producers, which is why we, of course, have taken the steps we're taking in Saudi and we're taking the steps we're taking here in the United States.

And just on your steps in the United States the new cracker is for 2017. I mean, that's 6 years from now. That's a long time. I'm wondering if you're putting that announcement out there just to discourage others from investing.

No, I said it earlier. Look, we buy and we buy for value-add ethylene derivatives. We're adding 200,000 tons a year of growth in our downstream value-add ethylene derivatives. We've got ways of doing that between now and 2017 start up of the new cracker. So it's our calculation on the growth curve. The announcement, therefore, 1.5 million tons by 2017 speaks to growth of our ethylene use in differentiated products with a plan focused on the Americas mostly U.S. but also some exports to Latin America. But at this point, whatever anyone else does, they do. Obviously, as I said earlier, we'll talk to anyone about making things more economic for Dow, but right now, no, I wouldn't say it that way.

And Kevin McCarthy with Bank of America Merrill Lynch has our next question.

Two-part question on propylene. First off, on the input side, if I look at some of the U.S. Gulf Coast benchmark margins, the propane crack for ethylene has improved really dramatically over the past month. Has it improved enough for you to shift into propane feed and perhaps alleviate some of the propylene imbalance that you've had in recent quarters? That's the first part. And then second part, if I consider a basket of derivatives -- acrylics, oxos [ph], PoPG -- do you see any opportunities to rework those derivative contracts to lay off some of the propylene monomers?

Right. So firstly, on your first question, yes. In fact, we're doing that as we speak. It's very much what you just said. And today's prices moving from ethane and propane feedstock makes a lot of sense. One of the most significant parts of the announcement for our downstream businesses speaks a little bit to your second question, which is back integration all the way back to propane based on shale gas liquids is as big an announcement as the ethylene announcement for us. When we take our propylene back integration of propane and 90% of our propylene is going to come from our own production, that's a big statement about the future of our ability to make more money here in the United States for all those derivatives you just mentioned. Obviously, the United States is solid. The GDP numbers today showed some weakness. It's weakness of the consumer kind, of the defense spending kind and also temporary issues around things like the lack of spend on the housing construction side because of weather. We see the U.S. recovery as solid to strong, and the demand for our propylene derivative is solid to strong. So our price power that Bill talked about earlier on propylene derivatives has remained, and we believe because of that, we cannot necessarily go and rework any particular contracts on the downstream kind. And on the upstream kind, frankly, it's our propane cracking that gives us the ability to leverage low-cost inputs.

Understood. And a quick follow-up if I may. You're addressing the longer term I think through PDH and the new cracker. Would it not make sense to also address the propylene imbalance by subtraction of propylene intensive businesses such as polypropylene resin?

Yes. Look, in the script, we talked about the continual move away from commodities. That's on strategy. Dow has a strategy that's very clear. We're going to expand our margins in the downstream and grow with the downstream by having value add technologies in Advanced Materials, downstream performance businesses and all those products that have a technology commercialization of innovation component like in our Coatings business. Our continued ability to achieve those new margins will come from our technology and our ability to market value add and differentiate, for example, in that business our paint customers and give them new technologies. In addition, to be competitive on the input, we're going to need obviously over time frames to really make our inputs cost competitive here in United States in particular. And as a consequence of that, we will continually find ways to shed low margin, non-value-add businesses that don't speak to a high margin, value add in the downstream. And I don't want to make any firm announcement here other than commodity plastics that have anything to do with propylene or ethylene in the long term will not be part of Dow's future.

We'll now move on to our next question from Hassan Ahmed with Alembic Global.

Andrew, question around the equity affiliates. As I look at earnings for companies like [indiscernible] and the like in Q1, sequentially they were up a good 30% or so. So my question is the relatively sort of flattish equity affiliate income that we've seen at Dow, was that outage related? And if it was, had that outage not happened, what would those earnings looked like in the quarter?

Hassan, no they weren't impacted by outages. They really -- I think from a comparison, I don't know what companies you're comparing to, but our equity earnings bounce back very, very quickly as you know, coming in. So we've actually consistently delivered for the last 3 or 4 quarters right up around that $300 million range. And we view that similar to the range going forward, so. But no, really wasn't impacted by any significant turnaround.

I think there is a little bit of softness in Ethylene Glycol. I think that's fair to say. But no, we don't see any signal there that you're reading, Hassan.

Okay, fair enough. And on that slightly sort of different topic. One of the things that seems to [indiscernible] off over the last month, 1.5 months sort of paranoia or fear or however you'd like to categorize it around Chinese demand, and a lot of people sort of raising question marks around relatively high levels of inventory in China as they became sort of a variety of petrochemicals. What are you guys seeing out in China as it pertains to inventory levels?

No, we're not seeing what you just indicated. Look, there's some decline in credit growth due to tightening because of inflation. But the Chinese run a fairly directed, as you know, it's a directed economy, so it's really to avoid the speculative side of property. Household savings are still very high. The Twelfth Five-year Plan, I was just in China listening to the Premier talk about it, is to stimulate the domestic sector. So any aberrations of the inventory kind are very short term, and we're seeing that in our results. I mean, China demand has stayed quite strong. I use the word robust, remain quite robust in our numbers and what we see going forward. They're spending on infrastructure, on energy, environment, new materials for aerospace and automotive. It's very directed. In fact, if you take the number, it will astonish you. The next 5 years, they want to spend $1.7 trillion in these sectors. I don't think we have a lot to worry about there in the short-term aberration details that you mentioned.

And we'll hear our next question from Don Carson with Susquehanna.

Question on Ag. You mentioned that your corn seed volumes were up nicely in the U.S. Are you just growing with the market which is going to be up about 4 million acres this year or you're actually seeing a share increase? And just to continue on that, I know you got this longer-term goal to 10% corn seed share. Given the strength of Monsanto, Pioneer and now a revitalized Syngenta, is 10% still a realistic goal for Dow's corn seed business in the U.S.?

Well, the answer to that is yes, it's still a realistic goal. It's too early in this planning season to talk to what the shares are right now. But we're on track to have 70% of our corn portfolio including SmartStax in these next 2 to 3 years, which is 10% of corn hybrids in 2010, 25% in 2011 and 70% in 2012. That's pretty strong penetration, Don, and I would say to you that our goal of 10% overall organically with a little bit occasional bolt-on M&A, we expect that to stay very much the goal. We think it's been quite successful and we, of course, we've got twofold DHT just around the corner. So as far as I'm concerned, our Ag business is on track, and they've proven themselves with their SmartStax launch and now in 2012, 2013 around the new DST launch.

John, I'd like to go ahead and hold up the questions and bring the session to an end. I'd like to thank everyone for your questions and for joining us this morning. We appreciate your interest in The Dow Chemical Company. For your reference, a copy of our prepared comments will be posted on Dow's website later today. We look forward to speaking with you again soon. Thank you.

Thanks, everyone.

And ladies and gentlemen, that does conclude today's conference call. Thank you for attending.