Mixed 1Q for Eastman Chemical - Analyst Blog


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Eastman Chemical Company ( EMN ) reported first-quarter 2012 earnings (from continuing operation) of $1.13 per share, a decline from $1.39 per share a year ago. Excluding costs associated with its imminent acquisition of Solutia and one-time gains, the Tennessee-based chemicals maker earned $1.22 a share in the quarter, which topped the Zacks Consensus estimate of $1.14.

Revenues and Margins

Revenues rose 4% year over year to $1,821 million, but missed the Zacks Consensus Estimate of $1,881 million. The growth was aided by increased selling prices.

Geographically, sales from the U.S. and Canada rose 9% to $1,002 million. Revenues from Asia Pacific fell 2% to $388 million. Sales in Europe, the Middle East and Africa inched down 2.5% to $346 million while Latin American revenues fell 3% to $85 million.

Operating earnings slipped roughly 16% year over year to $264 million. Adjusted operating earnings fell 9% year over year to $273 million.

Segment Highlights

Coatings, Adhesives, Specialty Polymers and Inks

The company said that revenues from this segment rose modestly in the first quarter to $470 million. Operating earnings declined to $98 million from $104 million a year ago on account of an unfavorable product mix. 


Sales in this segment climbed 11% to $323 million on the back of a favorable mix shift and increased selling prices. The favorable shift in product mix was mainly due to higher acetate tow sales volume in Asia Pacific. The company raised selling prices to counter higher raw material and energy costs, especially for wood pulp. Operating earnings rose to $101 million from $86 million a year ago, supported by pricing and mix benefits.

Performance Chemicals and Intermediates

Revenues from this business rose 6% to $736 million on higher domestic sales volumes, particularly in acetyl product lines. Operating earnings fell to $77 million from $94 million a year ago, impacted by lower selling prices in Asia Pacific.

Specialty Plastics

Sales declined 5% to $292 million in the quarter on account of a decline in volume, partially offset by better pricing. Lower sales volume was attributable to soft demand across the LCD and consumer and durable goods markets. Operating earnings decreased to $30 million from $35 million in the prior-year quarter due to lower volume.


Eastman Chemical ended the quarter with cash and cash equivalents of $569 million, down 11% year over year. Total debt remained stable year over year at roughly $1.6 billion. The company generated operating cash flows of $19 million during the quarter. 

Outlook and Recommendation

Eastman Chemical expects the global economy to grow slowly while volatility in raw material and energy costs would diminish moving ahead. The company expects earnings for 2012 to be roughly $5.30 a share. It expects to benefit from the increased capacity additions as well as the Solutia acquisition, expected to consummate in mid-2012.

Eastman Chemical's diversified chemical portfolio, along with its integrated and diverse downstream businesses, is driving earnings. The company benefits from business restructuring and cost-cutting measures. It has sold unprofitable units and closed down the poorly performing ones.

We currently have an Outperform recommendation on Eastman Chemicals. The company, which competes with The Dow Chemical Company ( DOW ) and E. I. du Pont de Nemours and Company ( DD ), holds a short-term Zacks #2 Rank (Buy).

DU PONT ( EI ) DE ( DD ): Free Stock Analysis Report
DOW CHEMICAL ( DOW ): Free Stock Analysis Report
EASTMAN CHEM CO ( EMN ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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