Eastman Chemical Company (EMN)

EMN 
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Eastman Chemical (EMN)

Q4 2012 Earnings Call

February 01, 2013 8:00 am ET

Executives

Gregory A. Riddle - Director of Investor Relations

James P. Rogers - Chairman and Chief Executive Officer

Curtis E. Espeland - Chief Financial Officer and Senior Vice President

Analysts

Duffy Fischer - Barclays Capital, Research Division

Robert Koort - Goldman Sachs Group Inc., Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Andrew W. Cash - SunTrust Robinson Humphrey, Inc., Research Division

Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division

Vincent Andrews - Morgan Stanley, Research Division

Christopher J. Nocella - RBC Capital Markets, LLC, Research Division

P.J. Juvekar - Citigroup Inc, Research Division

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division

Presentation

Operator

Good day, everyone, and welcome to the Eastman Chemical Company Fourth Quarter and Year-End 2012 Earnings Conference Call. Today's conference is being recorded. This call is being broadcast live on Eastman's website, www.eastman.com. We will now turn the call over to Mr. Greg Riddle of Eastman Chemical Company, Investor Relations. Please go ahead, sir.

Gregory A. Riddle

Okay, thank you, Tiffany, and good morning, everyone, and thanks for joining us. On the call with me today are Jim Rogers, Chairman and CEO; Curt Espeland, Senior Vice President and Chief Financial Officer; and Josh Morgan, Manager, Investor Relations.

Before we begin, I'll cover 4 items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in the company's fourth quarter and full year 2012 financial results news release and in our filings with the Securities and Exchange Commission, including our Form 10-Q, for the third quarter 2012 and our Form 10-K to be filed for 2012.

Second, earnings per share and operating earnings referenced in this presentation exclude mark-to-market pension and OPEB losses and gains, Solutia acquisition-related costs and asset impairments and restructuring charges and gains. A reconciliation to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded items, are available in our fourth quarter full-year financial results news release, which can be found in the Investors section of our website, eastman.com.

Third, this presentation includes revenues and operating earnings on a pro forma combined basis, assuming the acquisition of Solutia had been completed prior to first quarter 2011 that compare post-acquisition results to pre-acquisition pro forma combined results. More information on pro forma combined results is in our fourth quarter and full-year financial results news release. Lastly, we have posted slides that accompany our remarks for this morning's call on our website in the Presentations and Events section. And with that, I'll turn the call over to Jim.

James P. Rogers

Thanks, Greg. Good morning, everyone. Thanks for joining us. I'll begin on Page 3, and the numbers are in. We had another outstanding year in 2012, the latest in a series of outstanding years, reflecting the significant improvements we've made, which have resulted in Eastman becoming a portfolio of specialty businesses.

There were numerous accomplishments throughout the year, with some of the more significant listed here. We began the year by announcing the Solutia acquisition, and with Solutia, we have broadened our global footprint, brought together complementary and adjacent technologies and diversified our end markets. We believe we're in the early stages of seeing the significant value that this acquisition will bring to Eastman. We also continue to add capacity in key markets where there's a secular trend driving growth and where we have a technology advantage.

A couple of examples from 2012. As the market continues to switch from plasticizers with phthalates to non-phthalate plasticizers, we completed the retrofit of an asset we acquired from Sterling to our proprietary Eastman 168 non-phthalate plasticizer. Earlier in the year, we started our second line of Tritan copolyester, and Tritan volume increased almost 25% in 2012, as it penetrates markets, including medical and durable goods with a superior value proposition. And as passengers demand improved features in the cars they drive, including noise reduction, we increased capacity in Belgium of our advanced Saflex PVB sheet, which offers enhanced acoustics performance among other properties. Going forward, we'll continue to meet the needs of our customers with expansions in growing markets.

Moving next to the earnings growth. With 2012 EPS of $5.38, we've delivered greater than 20% compounded annual growth for EPS over the past 2 years and nearly 40% over the past 3. And given the strength of our cash generation and the importance we place on returning cash to shareholders, in December, our board increased our dividend to 15%. And I remind you, this is our third increase in 2 years, and we have increased the dividend 36% since the beginning of 2010.

Going next to Slide 4. As is my normal practice on these calls, I'll take just a few minutes to hold us accountable and review some of our key outlook statements for '12. As previously mentioned, we closed the Solutia acquisition in 2012, doing so on July 2, thereby meeting the mid-year commitment we made to you last January when the deal was announced.

Next, in October, we raised our full year 2012 EPS expectation to a range of $5.30 to $5.40, and then reiterated that expectation at our Investor Day in December. We came in at the high end of that range, and I'll talk more about that in a moment. We also indicated we expected to generate $1 billion of free cash flow in 2012 and 2013 combined. With our cash generation in 2012 and our expectations for 2013, we are on track to exceed this projection, as Curt will cover in his section.

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