Eastman Chemical Company
) posted third-quarter 2012 adjusted earnings (from continuing
operation) of $1.57 per share, outstripping the Zacks Consensus
estimate of $1.42 and exceeding the year-ago earnings of $1.26.
The adjusted earnings exclude costs related to its acquisition of
Solutia Inc. as well as restructuring and impairment charges.
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Including those one-time items, the Tennessee-based chemicals
maker earned 99 cents a share, down from $1.22 per share recorded
a year ago. Profit (as reported) from continuing operation dipped
roughly 11% year over year to $154 million as a healthy
double-digit growth in sales was more than offset by the hefty
acquisition and other charges.
Eastman Chemical closed its acquisition of Missouri-based
chemical company Solutia in July 2012 under a cash and stock deal
worth roughly $4.8 billion (including Solutia debt). The company
realigned its reporting segments following the closure of the
acquisition and reported its third quarter results under the new
structure which has five reporting segments.
Revenues and Margins
Revenues spiked roughly 25% year over year to $2,259 million, yet
missed the Zacks Consensus Estimate of $2,368 million. Sales were
boosted by strong growth across the Additives and Functional
Products and Advanced Materials divisions, supported by the
contributions of Solutia acquisition.
The company saw growth across all geographic regions in the
quarter. Sales from the U.S. and Canada rose 6% year over year to
$1,036 million. Revenues from Asia Pacific soared 45% to $627
million. Sales in Europe, the Middle East and Africa surged 45%
to $468 million while Latin American revenues shot up 64% to $128
Operating earnings fell 3% year over year to $263 million.
Adjusted operating earnings climbed 43% year over year to $397
Revenues from the Additives and Functional Products segment
cruised 55% year over year to $406 million in the third quarter,
buoyed by the acquisition of Solutia's rubber materials product
Sales from the Adhesives & Plasticizers segment was
essentially flat year over year at $348 million as lower pricing
offset an increase in sales volume. The decline in prices was due
to lower raw material and energy costs.
Revenues from the Advanced Materials division more than doubled
year over year to $559 million, boosted by the addition of
Solutia's advanced interlayers and performance films business.
Revenues from the Fibers segment rose 4% year over year to $349
million. Sales were aided by higher selling prices as a result of
an increase in raw material and energy costs, especially for wood
Specialty Fluids and Intermediates segment sales edged up 1% year
over year to $592 million supported by the addition of Solutia's
specialty fluids product lines.
Eastman Chemical ended the third quarter with cash and cash
equivalents of $237 million, down 47% year over year. Total debt
increased roughly three-fold year over year to nearly $5 billion,
primarily due to the assumption of Solutia debt. The company
generated operating cash flows of $353 million during the
quarter, up 66% year over year.
Outlook and Recommendation
Moving ahead, Eastman Chemical envisions a seasonally slower
fourth quarter and expects raw material and energy costs to rise
toward the end of the quarter. The company, however, has raised
its adjusted earnings forecast for 2012 to a band of $5.30 to
$5.40 a share from its earlier view of $5.30. The revised
guidance is higher than the current Zacks Consensus Estimate of
Eastman Chemical's diversified chemical portfolio, along with its
integrated and diverse downstream businesses, is driving its
earnings. We believe that the company is well placed to benefit
from the synergies of its Solutia acquisition going forward. The
company also stands to gain from business restructuring,
cost-cutting measures and increased capacity additions.
Eastman Chemicals, which competes with
The Dow Chemical Company
E. I. du Pont de Nemours and Company
), holds a short-term Zacks #3 Rank (Hold). We currently have a
long-term Outperform recommendation on the stock.