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Can Eastman Chemical (EMN) Sustain Earnings Streak in Q1?

Eastman Chemical CompanyEMN is set to release first-quarter 2018 results after the closing bell on Apr 26.

Eastman Chemical's profits increased in the fourth quarter of 2017, aided by strong growth of high-margin products in its specialty businesses. The company recorded profit of $581 million or $4.01 per share, a five-fold rise from the year-ago quarter's figure of $116 million or 79 cents. Adjusted earnings of $1.62 per share trounced the Zacks Consensus Estimate of $1.06.

Eastman Chemical has outperformed the industry it belongs to over a year. The company's shares have gained around 32.1% over this period, compared with roughly 10.9% gain recorded by the industry.

Eastman Chemical topped the Zacks Consensus Estimate in each of the trailing four quarters with an average beat of roughly 17.7%.

Is the company poised for another winning quarter? Let's see how things are shaping up for this announcement.

Factors to Watch For

Eastman Chemical, in its fourth-quarter call, said that it expects to drive growth on the back of growth investments, innovation and high margin products. It also sees modestly lower tax rate to support earnings growth. Eastman Chemical projects adjusted earnings per share growth in 2018 to be 8-12% year over year.

Revenues for Eastman Chemical for the first quarter is projected to rise roughly 6.9% year over year as the Zacks Consensus Estimate for the quarter is currently pegged at $2,461 million.

Revenues from Eastman Chemical's Additives and Functional Products division is anticipated to witness an 8.9% rise from the year ago figure as the Zacks Consensus Estimate for the first quarter is pegged at $842 million.

Advanced Materials unit's revenues are expected to increase 6.5% from the year ago quarter as the Zacks Consensus Estimate for the first quarter is $675 million.

Revenues for the Chemical Intermediates segment are projected to rise 6% year over year as the Zacks Consensus Estimate for the first quarter stands at $710 million.

Meanwhile, the Fibers segment is expected to witness a 5.2% year over year decline in revenues as the Zacks Consensus Estimate is pegged at $202 million for the first quarter.

Eastman Chemical's high margin products and its aggressive cost management actions are likely to continue to drive its earnings in the first quarter. The company should gain from sustained growth of its high margins specialty products.

The company is focused on cost-cutting and productivity actions, which is helping it to offset raw material cost inflation and other cost headwinds. The company expects to realize $100 million of cost savings in 2018 under its cost-reduction program.

Eastman Chemical should also gain from synergies of acquisitions, especially Taminco Corporation. The Taminco acquisition has provided attractive cost and revenue synergy opportunities.

However, Eastman Chemical continues to face pricing pressure in its Fibers unit. Lower prices of acetate tow are hurting the Fibers unit. Lower industry capacity utilization is affecting acetate tow prices.

Eastman Chemical is also exposed to raw material pricing headwinds. In particular, the company's chemical intermediates business is seeing a spike in raw materials costs, as witnessed in the last reported quarter. Raw materials cost headwind is expected to persist in the first quarter. The company expects raw material and energy prices, especially for olefins, to be volatile through 2018.

Nevertheless, the company's productivity measures and actions to increase selling prices of its products are expected to help it offset the impact of these headwinds in the to-be-reported quarter.

Eastman Chemical Company Price and EPS Surprise

Eastman Chemical Company price-eps-surprise | Eastman Chemical Company Quote

Earnings Whispers

Our proven model does not conclusively show that Eastman Chemical is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: Earnings ESP for Eastman Chemical for the first quarter is -0.39%. This is because the Most Accurate estimate stands at $2.10 while the Zacks Consensus Estimate is pegged at $2.11. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Eastman Chemical currently carries a Zacks Rank #2, which when combined with a negative ESP, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Estimates

Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

Allegheny Technologies Incorporated ATI has an Earnings ESP of +5.63% and sports a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

FMC Corporation FMC has an Earnings ESP of +1.43% and carries a Zacks Rank #2.

Kinross Gold Corporation KGC has an Earnings ESP of +10.93% and carries a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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