Here is the big one. The point that cannot be stressed here is the $10 per share earnings estimate in 2010 assumes below average growth and does NOT TAKE INTO ACCOUNT USES OF THE KUWAIT SALE PROCEEDS…
Todd:
Recently you said that EPS in 2015 would be $10. I believe that presentation was before your recent comments on energy prices and price increases. Now 2015 obviously seven years away. The current situation (oil), does that have any bearing on that estimate?
Andrew:
No, you know, we’ve estimated margins based on the commodity cycle and on global demand and supply . We take into account higher equity earnings from the joint ventures which will come online between 2011 and 2015, we add a portion of what we expect to get from our R&D programs, plus better quality earnings from our performance business and our continued cost controls. There are no assumptions around the use of the proceeds. The only assumption in there is, 3% average volume growth seven years, 3% is incredibly conservative – but okay.
We will just leave that as an assumption. I think the point that people miss is, yeah, there are recessions to worry about and term issues to worry about but we’ve positioned the company to get that number, the $3.50 number, and the $10.00 number, we’ve positioned it already. I don’t have to announce anything else – nothing more than we’ve already announced, that’s the bonus to this whole conversation … and that’s the part of the story that people don’t get.
And I will tell you this, I’m saying it over and over, I’ve had over 200 investor meeting in the last three months, you know many of them one on one, in one office with two or three people and what I keep telling them is you stand the risk of missing out the inflection point. You’re trying to call bottom on me and yeah, there are lots of things to worry about, the cost of surging oil, but I’m recognizing that case by a 20% increase … now we are not going to stand here and take surging oil, we’re going to pass it on and we are going to take advantage of surging oil, not to be victimized by it . You’re going miss the inflection point, you’re thinking “this company is going crater like it did in 01-02” and you’re waiting for that point, and what we are showing you two mile posts that are saying that between now and 2011-2012 we will reach an inflection point, and if I have anything to do with it, sooner rather than later, 2009 / 2010 right? So answering the earlier question , it will be independent of where oil tracks and it will be somewhat immune to the U.S. economy because of the global economy.
Todd:
When I first saw the $10.00 a share, to me it seemed far below what I would of anticipated, based on the things I see going on, and I assumed I was missing something, “something is just not right” I said. The question that maybe your anticipating oil going to $175 by then or something like that. Now obviously you have the cash coming in, it doesn’t seem to me that M&A is imminent. It seems to me like probably it’s a couple years off. The little tiny ones are what’s most likely, but anything significant based on the direction your going with AG and current valuation there. It would seem a wiser use of the cash is either more of the petrochemical joint ventures, share repurchase or increasing dividend, accurate?
Andrew:
Yes
Todd:
Ok, now, any breakdown between what you anticipate going between dividends or repurchases?
Andrew:
No, we haven’t, we’ve got target values but we haven’t declared them . I get asked that question a lot AS you can imagine.
Todd:
Yeah, I’m sure you do.
Andrew:
What I keep saying over and over is capital structure matters, dividend consistency matters. Dow has never had dividend consistency. You can rest assured that as we get confident about our extremes, we just went through a whole discussion on that, the dividend increase is definitely something the demand is paying out ratios of 40% or more and then additional repurchases. We’ve bought 6% already of outstanding shares over the last two years. We have the opportunity with the Kuwait cash, depending on what share price you want to use of buying 20-25% of the company back if we want to. That might limit our planning and it might limit our opportunity so we probably wouldn’t do all that. But even half that number, if it happens, it surely a big number. You know I will tell you that most likely we are going to address that as the next quarter goes by and give some answers. Also we’ll return some cash to R&D to do what we have to do and some on the M&A side. As I’ve said to the world, I do think that share repurchases and dividend increase in some construct is very likely in the next six months.
Todd:
I mean, to me, I don’t see a problem sitting there with $3 or $4 billion in cash waiting for the perfect deal to come down the road in a couple years.
Andrew:
Yeah, many people say that to me and I agree with them. One more time, that tells me why I have enjoyed reading your stuff, it’s very logical and you know people they’re trying to intervene. I don’t play games with my language, I actually say it.
Todd:
No, I think people try to interpret what you say instead of just listening.
Andrew:
Thank you for saying that, I really appreciate that. You know it is logical what you just said, and that’s exactly the way we are thinking. We don’t have to make this a mystery and I think keeping the cash makes sense and frankly the company’s earned the right to grow in as many ways it can, organically and through M&A – and of course organic can also mean investing in share purchases in itself.
Todd:
If you were to pick what area of the company that just, you just can’t talk enough about because your so excited about it, which one would it be?
Andrew:
Well you know, that’s a great question and I don’t think I’ve been asked that, so you get originality, and you know I’m not going to cop out on you, that would be out of my character. I would have to say the whole AG Bio space, not just AG space.
Todd:
Me too.
Andrew:
We are under promising and over delivering there and we’ve got some neat stuff going on in the world of bio technology, alternative energy, alternative feed stocks and I can’t wait until to investors day because we will be making a lot more noise about this. You may have noticed, even today I think, AG made some additional announcements.
Todd:
I saw that, I saw that.
Andrew:
We have whole slue of things that we are literally just dropping out there. And just calling it Dow Ag is actually limited, we are leveraging over into polyurethanes, epoxy resins, polyestyrene, etc, there is a bunch of other uses that we are putting IT into. Some of the neat stuff we are doing in new technology developments around energy efficiency comes n a very close #2. For example, the new diesel filter that’s launching and also the Building Integrated Photovoltaics program we are working on for our Dow Building Solutions. So energy efficiency as a whole. I’ve launched these four mega trends to give everyone a sense of where we are focusing our efforts and you may have noticed all the examples I’ve given are in two of the four, health and nutrition and energy, those two.
Disclosure (“none” means no position):Long Dow
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