Eastman Chemical Company (EMN)

EMN 
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Eastman Chemical (EMN)

Q2 2011 Earnings Call

July 29, 2011 8:00 am ET

Executives

Unknown Speaker -

Curtis Espeland - Chief Financial Officer and Senior Vice President

Gregory Riddle - Director of Investor Relations

James Rogers - Chairman and Chief Executive Officer

Analysts

Manav Gupta - Goldman Sachs Group Inc.

David Begleiter - Deutsche Bank AG

Jeffrey Zekauskas - JP Morgan Chase & Co

Frank Mitsch - BB&T Capital Markets

Edlain Rodriguez - Gleacher & Company, Inc.

Kevin McCarthy

Duffy Fischer - ClearBridge Advisors

P.J. Juvekar - Citigroup Inc

Presentation

Operator

Good day, everyone, and welcome to the Eastman Chemical Company Second Quarter 2011 Earnings Conference Call. Today's conference is being recorded. This call is being broadcast live on Eastman's website, www.eastman.com. I will now turn the conference over to Mr. Greg Riddle of Eastman Chemical Company, Investor Relations. Please go ahead, sir.

Gregory Riddle

Okay. Thank you, Tricia, and good morning, everyone, and thank you for joining us. On the call with me today are Jim Rogers, Chairman and CEO; and Curt Espeland, Senior Vice President and Chief Financial Officer.

Before we begin, I'll cover 3 items. First, during this call, you will hear certain forward-looking statements concerning our plans and expectations for third quarter and full year 2011. Actual results could differ materially from our plans and expectations. Certain factors related to future expectations are or will be detailed in the company's second quarter 2011 financial results news release on our website and in our filings with the Securities and Exchange Commission, including the Form 10-Q filed for first quarter 2011 and the Form 10-Q to be filed for second quarter 2011.

Second, except when otherwise indicated, all financial measures referenced in the call, and in the slides accompanying the call, will be non-GAAP financial measures, including earnings per share and operating earnings that exclude restructuring related charges. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures, including a description of the restructuring-related items are available in our second quarter 2011 financial results news release and the tables accompanying the news release.

Lastly, we posted the slides that accompany our remarks for this morning's call on our website at www.investors.eastman.com, and you'll find those in the Presentations & Events section. With that, I'll turn the call over to Jim.

James Rogers

Thanks, Greg, and good morning, everyone. If I sound a little funny, I just have a little cold. I'll tell you what, I want to start out, first, by saying that even though we're only 5.5 hours from Washington, D.C., we want to assure all our friends and family that we're still healthy. We're fine. We're not in any personal danger. The plume of radioactive ridiculousness is not blowing our way. The tsunami of surrealism has not seemed to have breached the levy, called the Beltway, at this time. And we only have one plan here. I've yet to -- I've never failed in getting the votes I need to implement that plan of growth.

Now I can't vouch for the levy on the New York side of D.C., because as we announced, record earnings, not only for the company, as a whole, and for each of the businesses, as we raised our guidance for the year, as we put a foundation in place for double-digit earnings growth year-over-year. I see we're indicated lower, while United States government, which is indicating bankruptcy and failure to meet its obligations, people are piling into their short-term notes. So I can't vouch for the levy in the north side. And since all that was unscripted, and my lawyers are probably screaming in their feet. I'll stop there and pick it up on Page 3.

Beginning with a review of our performance against some of our recent outlook statements. Our second quarter guidance was that our EPS would be slightly above first quarter EPS of $2.52, and we delivered on that. Guidance for full year 2011 was that we would report EPS slightly above $9. We're off to a great start with 2 consecutive record EPS quarters. In the second half, we expect to continue to deliver year-over-year earnings growth. And as a result, we are raising our outlook by $0.25.

As expected, our very strong earnings performance is translating into cash flow. We're on track to generate approximately $200 million of free cash flow this year. And I hope you'll agree, we've been disciplined on how we allocate our cash. We put cash to work this quarter in a number of areas. And we'll talk about that throughout our remarks this morning. Bottom line is that we've had a fantastic first half of the year. We're on track for a great full year 2011. And I remain confident that we are well positioned to deliver earnings growth in 2012 and beyond.

Moving next to Slide 4, and our corporate results for the second quarter. Second quarter EPS was a record. And this is the second consecutive quarter that we've set an EPS record. In fact, we've set a quarterly EPS record for 3 of the last 4 quarters. In addition, this is the eighth quarter in a row of year-over-year earnings growth, and we expect to continue this performance in the second half of this year. Sales revenue in the quarter was also a record, driven by higher selling prices and strong volume growth. Prices increased in response to higher raw material and energy costs and also because of tight industry supply. Volume increased throughout the company and in most regions.

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