Eastman Chemical (EMN) Poised on Cost Cuts Amid Headwinds

Zacks Equity Research Published on November 27, 2017

We issued an updated research report on Eastman Chemical Company (EMN - Free Report) on Nov 24.

Eastman Chemical saw higher profits in the third quarter of 2017, driven by its cost management actions, disciplined capital allocation and growth of high-margin products. Its adjusted earnings were $2.19 per share for the third quarter, up from $1.86 in the year ago-quarter. Earnings topped the Zacks Consensus Estimate of $2.03. Revenues rose around 8% year over year to $2,465 million in the quarter, beating the Zacks Consensus Estimate of $2,387 million.

Eastman Chemical has underperformed the industry it belongs to over a year. The company’s shares have gained around 23% over this period, compared with roughly 28.3% gain recorded by the industry.

The company expects to drive growth on the back of innovation and high margin products amid an uncertain global business environment. Eastman Chemical expects adjusted earnings per share growth in 2017 to be toward the top end of the earlier projected range of 10-12% year over year, excluding the financial impact of the Kingsport operational incident.

The company’s Kingsport coal gasification area suffered an operational incident on Oct 4, However, there were no reports of any adverse impact on the environment or on human health. The company noted that all areas of the manufacturing facility have resumed operations with the exception of coal gasification operations. The coal gasification area is expected to be operational by the end of the fourth quarter.

Though Eastman Chemical is still assessing the financial impact of the incident, it is expected to reduce operating earnings to $50-100 million. The company expects costs associated with the incident to be around $100 million in the fourth quarter.

Eastman Chemical remains focused on cost-cutting and productivity actions amid a challenging operating environment. The company’s actions to improve its cost structure is contributing to its earnings growth. It also remains committed to reduce debt.

Eastman Chemical is also gaining from synergies of acquisitions, especially Taminco Corporation. The Taminco acquisition has provided attractive cost and revenue synergy opportunities.

However, the company continues to face pricing pressure. Prices of acetate tow remain weak, hurting the company’s Fibers unit. Hefty charges associated with the Kingsport facility is also expected to weigh on earnings in the fourth quarter. The company is also exposed to raw material pricing headwinds.

Eastman Chemical Company Price and Consensus

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