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Eastman Chemical (EMN) Benefits on Cost Actions and Innovation

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Eastman Chemical Company (EMN - Free Report) is benefiting from cost-management actions and its innovation-driven growth model. However, it is exposed to headwinds like high raw material costs and the impacts of the ongoing semiconductor shortage.

Eastman Chemical, which is a prominent player in the chemicals space along with Dow Inc. (DOW - Free Report) , Celanese Corporation (CE - Free Report) and Air Products and Chemicals, Inc. (APD - Free Report) , is benefiting from cost-cutting and productivity actions. It is undertaking a more aggressive approach to keep manufacturing costs in control. The company reduced costs by roughly $150 million in 2020. It is also on track with its cost-cutting actions in 2021, which are expected to contribute to its earnings per share. Eastman Chemical is expected to benefit from lower operating costs from its operational transformation program.

The company is also focused on generating new business revenues from innovation. It is investing around $250 million over 2021-2022 to construct one of the biggest plastic-to-plastic molecular recycling facilities in the world. The company expects $600 million of new business revenues from innovation in 2021. Eastman Chemical will also likely gain from its strategic acquisitions and end-market recovery.

Eastman Chemical is also committed toward maintaining a disciplined approach to capital allocation, with an emphasis on financing its dividend and debt reduction. The company returned $328 million to shareholders through dividend payouts and share repurchases during second-quarter 2021. It expects to buyback shares worth roughly $250 million in the second half of this year. Eastman Chemical also anticipates free cash flow to exceed $1.1 billion for 2021.

However, the company faces headwinds from higher raw material, energy and distribution costs in some of its products. It witnessed unfavorable impacts from supply chain constraints and higher logistics costs in the second quarter. Headwinds associated with supply and logistics are likely to continue to impact its third-quarter results.

The slowdown in automotive production due to the semiconductor shortage is another concern. The chip shortage is affecting automotive production globally. The shortage, partly caused by the impacts of the coronavirus pandemic, is disrupting production of parts and vehicles as well as affecting all major automotive original equipment manufacturers. This is likely to affect demand in the market over the near term.

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