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Eastman Chemical Earnings Outshine, Ups View

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Eastman Chemical (EMN - Free Report) racked up second-quarter 2013 adjusted earnings (from continuing operations) of $1.80 per share, crushing the Zacks Consensus estimate by 16 cents and exceeding the year-ago earnings of $1.40. The adjusted earnings exclude costs related to the acquisition of Solutia Inc. as well as restructuring and impairment charges.

On a reported basis, Eastman Chemical’s profit (from continuing operation) zoomed 49% year over year to $264 million or $1.69 a share. The bottom line was boosted by a healthy double digit rise in revenues, aided by Solutia acquisition.

The Tennessee-based chemicals maker’s shares were up 4% in extended trading yesterday.  

Revenues and Margins

Revenues shot up 32% year over year to $2,440 million, beating the Zacks Consensus Estimate of $2,407 million. Sales were driven by strong gains across the Additives and Functional Products and Advanced Materials divisions and the contributions of the Solutia acquisition.

Sales increased across all geographic regions in the reported quarter. Revenues from the U.S. and Canada rose roughly 14% year over year to $1,121 million. Sales from Asia-Pacific cruised 50% to $682 million. Europe, Middle East and Africa (EMEA) logged a 54% surge in sales to $509 million while Latin American revenues climbed 58% to $128 million.

Operating earnings jumped 35% year over year to $428 million in the quarter on higher sales and acquisition impact. Adjusted operating earnings leapt 41% year over year to $454 million.

Segment Highlights

Revenues from the Additives and Functional Products division jumped 54% year over year to $430 million in the reported quarter riding on the acquisition of Solutia’s rubber materials product lines. Revenues include sales of certain products in the tire market which were earlier reported in the Adhesives and Plasticizers segment.

Adhesives and Plasticizers segment sales slipped 9% to $339 million on lower volume, especially in adhesives resins, and weak pricing. Weak demand for adhesives resins in specific markets such as tapes, labels, packaging and customer destocking led to the decline in volume.

Revenues from the Advanced Materials unit nearly doubled year over year to $625 million, buoyed by the addition of Solutia’s interlayers and performance films product lines. Strong demand across Asian and North American transportation markets contributed to a rise in sales volume for interlayers products.

Fibers segment sales rose 14% to $363 million, helped by higher selling prices as a result of an increase in raw material and energy costs.

Revenues from the Specialty Fluids and Intermediates division rose 19% to $677 million. The addition of Solutia’s specialty fluids product lines contributed to the rise.

Financial Health

Eastman Chemical exited the quarter with cash and cash equivalents of $234 million, down 92% year over year. Total debt increased 22% year over year to nearly $4.7 billion. Eastman Chemical generated operating cash flows of $362 million during the quarter, up 15% year over year. It bought back shares worth $46 million during the quarter.


Moving forward, Eastman Chemical feels that its portfolio of specialty businesses, strong foothold in key markets, vast geographic presence and diversified end markets will help it to deliver strong earnings despite sluggish global economic growth.

Considering there factors, Eastman Chemical has raised its full year adjusted earnings (from continuing operations) forecast to $6.40 to $6.50 per share from its earlier view of $6.30 to $6.40. The current Zacks Consensus Estimate for 2013 is $6.34. The company sees earnings in the second half to be modestly lower than the first due to seasonality.

Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses remains its strength. The company should continue to benefit from the synergies of its Solutia acquisition. It also stands to gain from business restructuring, cost-cutting measures and increased capacity additions.

However, Eastman Chemical remains exposed to volatility in raw material costs and lower pricing. Uncertainty regarding the timing of a recovery in Europe also remain as overhang.

Eastman Chemical currently holds a Zacks Rank #4 (Sell).

Other companies in the chemical industry with favorable Zacks Rank are Northern Technologies International Corp. , Cytec Industries Inc. and PPG Industries Inc. (PPG - Free Report) . While Northern Technologies retains a Zacks Rank #1 (Strong Buy), both Cytec Industries and PPG carry a Zacks Rank #2 (Buy).

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