Eastman Chemical Company
) reported second-quarter 2012 earnings (from continuing operation)
of $1.26 per share, down roughly 17% from $1.51 per share posted a
year ago. Excluding costs related to its acquisition of Solutia
Inc. and a one-time gain, the Tennessee-based chemicals maker
earned $1.40 a share, which outperformed the Zacks Consensus
estimate of $1.34.
Eastman Chemical wrapped up its purchase of Missouri-based chemical
company Solutia earlier this month under a cash and stock deal
worth roughly $4.8 billion (including Solutia debt). The
acquisition is expected to significantly accelerate the company's
growth efforts and offer lucrative opportunities in Asia-Pacific.
However, hefty costs associated with the takeover dragged down the
company's profit in the second quarter. Profit (as reported) from
continuing operation clipped roughly 19% year over year to $177
Revenues and Margins
Revenues dipped 2% year over year to $1,853 million, lagging behind
the Zacks Consensus Estimate of $1,948 million. The company
witnessed weakness across its business segments in the quarter. Its
Specialty Plastics division, in particular, was hit by weak demand.
Geographically, sales from the U.S. and Canada fell 2% year over
year to $987 million. Revenues from Asia Pacific rose 5% to $455
million. Sales in Europe, the Middle East and Africa slid 11% to
$330 million while Latin American revenues rose 5% to $81 million.
Operating earnings fell 5% year over year to $317 million. Adjusted
operating earnings inched up 2% year over year to $323 million.
Revenues from the Coatings, Adhesives, Specialty Polymers and Inks
segment edged down 1% year over year to $486 million in the second
Sales from the Fibers segment fell 4% to $318 million due to
unfavorable mix shift, which more than offset an increase in
selling prices. The unfavorable shift in product mix was mainly due
to lower acetate tow sales volume in Asia-Pacific. The company
raised selling prices to counter higher raw material and energy
costs, especially for wood pulp.
Revenues from the Performance Chemicals and Intermediates division
were essentially flat year over year at $732 million as higher
sales volumes and favorable mix shift were masked by a decline in
selling prices. Volume and mix benefited from higher domestic sales
volume of acetyl products.
Specialty Plastics segment sales declined 6% to $315 million in the
quarter on account of a decline in volume, partially offset by a
favorable shift and better pricing. Lower sales volume was
attributable to soft demand for copolyester product lines across
consumer and durable goods markets in the U.S. and Europe.
DU PONT (EI) DE (DD): Free Stock Analysis
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EASTMAN CHEM CO (EMN): Free Stock Analysis
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Eastman Chemical ended the quarter with cash and cash equivalents
of $3 billion, a nearly five-fold year-over-year increase. As part
of the financing of Solutia acquisition and repayment of certain
Solutia debt, the company received $2.3 billion net proceeds from
the public offering of notes in June 2012.
Total debt increased nearly two-and-a-half fold year over year to
roughly $3.8 billion, primarily due to the assumption of Solutia
debt. The company generated operating cash flows of $316 million
during the quarter.
Outlook and Recommendation
Moving ahead, Eastman Chemical continues to expect double-digit
earnings growth in 2012, boosted by the Solutia acquisition. The
company retained its adjusted earnings forecast for the year at
$5.30 a share, higher than the current Zacks Consensus Estimate of
We believe that Eastman Chemical is well placed to benefit from the
synergies of its Solutia acquisition in second-half 2012. The
company also stands to benefit from business restructuring,
cost-cutting measures and increased capacity additions.
We currently have an Outperform recommendation on Eastman
Chemicals. The company, which competes with
The Dow Chemical Company
E. I. du Pont de Nemours and Company
), holds a short-term Zacks #2 Rank (Buy).