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Eastman Chemical's Earnings Trump, Net Jumps

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Eastman Chemical’s (EMN - Free Report) first-quarter 2013 adjusted earnings (from continuing operations) of $1.62 per share beat the Zacks Consensus estimate by a nickel and were well above the year-ago earnings of $1.22. The adjusted earnings exclude costs related to the acquisition of Solutia Inc. as well as restructuring and impairment charges.

On a reported basis, the Tennessee-based chemicals maker logged a profit (from continuing operation) of $247 million or $1.57 a share, a 55% year-over-year surge. The bottom line was boosted by a healthy rise in revenues.

Revenues and Margins

Revenues surged roughly 27% year over year to $2,307 million, yet trailed the Zacks Consensus Estimate of $2,393 million. The top line was driven by strong gains across the Additives and Functional Products and Advanced Materials divisions and the contributions of the Solutia acquisition.

Eastman Chemical saw higher sales across all geographic regions in the reported quarter. Revenues from the U.S. and Canada rose roughly 8% year over year to $1,081 million. Sales from Asia-Pacific soared 53% to $595 million. Europe, Middle East and Africa (EMEA) recorded a 48% jump in sales to $513 million while Latin American revenues climbed 39% to $118 million.

Operating earnings shot up 49% year over year to $393 million in the quarter on higher sales. Adjusted operating earnings climbed 48% year over year to $403 million.

Segment Highlights

Revenues from the Additives and Functional Products division cruised 59% year over year to $419 million in the reported quarter, buoyed by the acquisition of Solutia’s rubber materials product lines. Revenues include sales of certain products which were earlier reported in the Adhesives & Plasticizers segment.

Sales from the Adhesives & Plasticizers segment dipped 8% to $345 million on lower volume, stemming from weak demand for adhesives resins sold to consumables markets.

Revenues from the Advanced Materials division doubled year over year to $584 million, boosted by the addition of Solutia’s interlayers and performance films product lines.

Fibers segment sales rose 7% to $346 million, helped by higher selling prices as a result of an increase in raw material and energy costs and increased volume.

Sales from the Specialty Fluids and Intermediates segment rose 7% to $607 million, aided by the addition of Solutia’s specialty fluids product lines.

Financial Condition

Eastman Chemical exited the quarter with cash and cash equivalents of $178 million, down 69% year over year. Total debt jumped roughly three-fold year over year to nearly $4.8 billion, primarily due to the assumption of Solutia debt. The company generated operating cash flows of $5 million during the year, down 74% year over year.


Moving forward, Eastman Chemical feels that its strong foothold in key markets, vast geographic presence and diversified end markets will help it to deliver strong earnings. However, uncertainty regarding the timing of a recovery in Europe and volatility in raw material and energy costs remain as overhangs.

Considering there factors, Eastman Chemical has backed its full year adjusted earnings (from continuing operations) forecast of $6.30 to $6.40 a share. The current Zacks Consensus Estimate for 2013 is $6.42

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.

Eastman Chemical currently holds a Zacks Rank #2 (Buy).

Other companies in the chemical industry that are worth considering include Shin-Etsu Chemical Co., Ltd. (SHECY - Free Report) , Celanese Corporation (CE - Free Report) and FMC Corp. (FMC - Free Report) . While Shin-Etsu Chemical retains a Zacks Rank #1 (Strong Buy), both Celanese and FMC hold a Zacks Rank #2 (Buy).

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