Eastman Chemical Company (EMN)

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Eastman Chemical (EMN)

Q3 2011 Earnings Call

October 28, 2011 8:00 am ET

Executives

James P. Rogers - Chairman and Chief Executive Officer

Gregory A. Riddle - Director of Investor Relations

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

Analysts

P.J. Juvekar - Citigroup Inc, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Thomas McGannon

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

Duffy Fischer - Barclays Capital, Research Division

Lee Bressler

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Manav Gupta - Goldman Sachs Group Inc., Research Division

Paul Leming - Ticonderoga Securities LLC, Research Division

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

Presentation

Operator

Good day, everyone, and welcome to the Eastman Chemical Company Third Quarter 2011 Earnings Conference Call. Today's conference is being recorded. This call is being broadcast live on Eastman's website, www.eastman.com. We'll 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, Tricia, 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 Fernando Subijana, our new Manager of Investor Relations.

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 fourth quarter 2011 and full year 2012. 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 third 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 the second quarter 2011 and the Form 10-Q to be filed for third quarter 2011.

Second, except where 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 asset impairments or restructuring charges and gains. 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.

Third, earlier this month, we completed a two-for-one stock split. All per share amounts in this presentation have been adjusted for the split.

Lastly, we have posted the slides that accompany our remarks for this morning's call on our website at www.investors.eastman.com in the Presentations & Events (sic) [Events & Presentation] section. With that, I'll turn the call over to Jim.

James P. Rogers

Thanks, Greg, and good morning, everyone. Thanks for joining us. I'm on Slide 3 and as this my normal practice, I'll begin with a review of our 2011 outlook statements that we made back in July. For third quarter, we said we expected to be above third quarter 2010 EPS of $1.11 and we delivered with EPS of $1.19.

For the year, we said we expected to be slightly above $4.62 and our current full year guidance is about the same, and I'll talk more about that in a few minutes. We said we expected free cash flow for the year to be approximately $200 million and we made some decisions that may bring us a little below that number, but still very healthy, and Curt will take you through the details on that.

And lastly, we said we would continue to be disciplined in how we put cash to work and we have been. During the quarter, stockholders received almost $150 million through the combination of dividends and share repurchases. We completed 3 acquisitions in the quarter, Sterling Chemicals, Scandiflex and Dynaloy. And we expect Sterling and Scandiflex to be slightly accretive to earnings this year, accretive above our cost of capital next year and both support growth in non-phthalate plasticizers, and Scandiflex gives us a manufacturing presence in Brazil. And Dynaloy will support our growth efforts for electronic materials within CASPI. And we remain on schedule for a number of capacity additions throughout the company. So I think Eastman is well-positioned with solid core businesses and a strong balance sheet to demonstrate the resilience of our earnings and what is definitely an uncertain economic environment.

Turning to Slide 4 and our corporate results for the quarter. Revenue increased by 20% primarily driven by higher selling prices. Volume was flat and this reflects some softening of demand in a few markets, as well as inventory destocking due to significant volatility in raw material cost and also likely some cash flow management. Operating earnings were down slightly year-over-year and there are number of factors. In third quarter 2011, we had $11 million in cost from the earlier unplanned outage of one of our crackers in Texas, and this has been backed up and running since early August. And we recognized $8 million from an acetyl technology license with Chang Chun Petrochemical. You may remember, we offset $12 million in revenue on earnings from this license in the first quarter of 2010.

Looking back at third quarter 2010, we were helped by $22 million from the partial recovery of an insurance settlement related to a power outage at our Texas facility. So with these factors considered, the year-over-year is actually positive as higher selling prices more than offsets substantially higher raw material and energy cost, and earnings per share of $1.19 are a record third quarter for us.

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