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Eastman Chemical Earnings Top, Cuts View

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Eastman Chemical (EMN - Free Report) topped earnings expectations in the third quarter of 2013 on strength across its Additives and Functional Products and Advanced Materials divisions. But its shares fell 2% in extended trading yesterday on reduced earnings outlook for the full year.

The Tennessee-based chemicals maker posted adjusted earnings (from continuing operations) of $1.68 per share for the reported quarter, topping the Zacks Consensus estimate by 4 cents and exceeding the year-ago adjusted earnings of $1.57. The adjusted earnings exclude costs associated with the acquisition of Solutia Inc., pension-related gains as well as restructuring and impairment charges.

On a reported basis, Eastman Chemical’s profit (from continuing operation) doubled year over year to $308 million or $1.97 a share from $154 million or 99 cents a share a year ago. The bottom line was boosted by higher sales and lower costs.

Revenues and Margins

Revenues rose roughly 3% year over year to $2,338 million, beating the Zacks Consensus Estimate of $2,316 million. Sales were driven by gains across the Additives and Functional Products and Advanced Materials divisions which more than offset the decline in the Adhesives and Plasticizers division.

Eastman Chemical saw higher sales across all geographic regions in the quarter. Revenues from the U.S. and Canada rose roughly 3% year over year to $1,069 million. Sales from Asia-Pacific went up 5% to $658 million. Europe, Middle East and Africa (EMEA) registered a 3% gain in sales to $481 million while Latin American revenues edged up 2% to $130 million.

Operating earnings shot up 82% year over year to $479 million in the quarter on higher sales, aided by gains related to pension and other postretirement benefits. Adjusted operating earnings inched up 2% year over year to $405 million.

Segment Review

Revenues from the Additives and Functional Products division moved up 10% year over year to $445 million in the reported quarter riding on volume gains for solvents product lines on higher coatings demand in the building and construction market, aided by added capacity at the Longview, Tex., facility and increased demand in the transportation market. 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 dipped 8% to $321 million on lower pricing in adhesives resins and plasticizers product lines and reduced volume in adhesives resins product lines. Increased competitive pressure led to a decline in selling prices for adhesives resins and plasticizers product lines. Absence of sales from certain products which now being reported in the Additives & Functional Products division led to volume decline.

Revenues from the Advanced Materials unit rose 4% year over year to $583 million on increased demand for specialty plastics products including Tritan copolyester.

Fibers segment sales rose 4% to $363 million, supported by higher selling prices as a result of an increase in raw material and energy costs.

Revenues from the Specialty Fluids and Intermediates division went up 5% to $620 million on volume gains for olefin-based products sold into Asia Pacific and increased prices for a number of product lines.


Eastman Chemical exited the quarter with cash and cash equivalents of $222 million, down 6% year over year. Long-term debt declined 9% year over year to nearly $4.4 billion. Eastman Chemical generated operating cash flows of $427 million during the quarter, up 21% year over year. It bought back shares worth $35 million during the quarter.


Looking ahead, Eastman Chemical expects a seasonally slower fourth quarter amid a still uncertain global economic backdrop. The company sees challenges to persist in its Adhesives and Plasticizers division along with increased raw material and energy costs.  

Considering there factors, Eastman Chemical cut its full year adjusted earnings (from continuing operations) forecast to $6.30 to $6.40 per share from its earlier view of $6.40 to $6.50. The current Zacks Consensus Estimate for 2013 is $6.48.

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 raw material costs pressure. 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 space with favorable Zacks Rank are Air Products & Chemicals Inc. (APD - Free Report) , E. I. du Pont de Nemours and Company and FMC Corp. (FMC - Free Report) . All retain a Zacks Rank #2 (Buy).

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