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Eastman Chemical to be Aided by Acquisitions & Cost Reduction

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We issued an updated research report on Eastman Chemical Company (EMN - Free Report) on Oct 1.

Eastman Chemical’s cost reduction actions are expected to contribute to its earnings in 2018.  The company saw higher profits in the second quarter, aided by strong growth in its specialty businesses and cost-control actions.

Eastman Chemical, which is one of the prominent chemical companies sharing space with Celanese Corporation (CE - Free Report) , Air Products and Chemicals, Inc. (APD - Free Report) and PPG Industries, Inc. (PPG - Free Report) , noted in July, that strong volume gains in the specialty businesses and disciplined cost management helped it achieve strong earnings growth during the first half of 2018. The company estimates 2018 adjusted earnings per share growth at 10-14% year over year.
The company is focused on cost-cutting and productivity actions, which is helping it offset raw-material cost inflation and other cost headwinds. It expects to realize $100 million of cost savings in 2018, under its cost-reduction program.

Eastman Chemical should also gain from strategic acquisitions, especially Taminco Corporation. The buyout of Taminco Corporation strengthened the company’s foothold in attractive niche end-markets, including food, feed and agriculture. The acquisition also provided attractive cost and revenue synergy opportunities.
Further, the company is committed to reduce debt and boost shareholder returns, leveraging strong free cash flow. The company repaid $350 million of debt last year. Moreover, it returned roughly $410 million to shareholders during the first half of 2018. Eastman Chemical expects to generate solid free cash flow of more than $1.1 billion in 2018.

However, the company is exposed to volatility in ethylene prices, which is weighing on its margins. Eastman Chemical is also seeing a spike in raw-material costs, which is anticipated to persist in the second half of 2018. The company anticipates raw-material prices to be volatile through 2018.

Eastman Chemical Company Price and Consensus


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