Eastman Chemical
Company (EMN) reported second-quarter
earnings of $2.76 per share, compared with $1.95 per share, a year
earlier and beat the Zacks Consensus estimate of $2.60 per
share.
Including a
$15 million gain in second quarter 2011 from the sale of previously
impaired methanol assets in Beaumont, Texas, and $3 million of
restructuring charges in second quarter 2010, earnings from
continuing operations were $2.90 per diluted share in the reported
quarter versus $1.92 per diluted share in the year ago
quarter.
Revenues
With sales
improving across all product lines, Revenues climbed 26% year over
year to $1.9 billion, driven by higher sales volume and increased
selling prices and outpaced the Zacks Consensus estimate of $1.8
billion.
The higher
sales volume was attributed primarily to growth in plasticizer
product lines, increased demand for acetyl chemicals, the fourth
quarter 2010 restart of a previously idled olefins cracking unit at
the Texas facility, and strengthened end-market demand primarily in
the packaging, transportation, and durable goods markets. The
increase in selling prices was in response to higher raw material
and energy costs.
Costs and
Income
Operating
earnings in the second quarter 2011 increased by $54 million to
$303 million driven by higher selling prices and higher sales
volume and offset by higher raw material and energy
costs.
Segment
Details
Performance Chemicals and
Intermediates: Eastman’s core business
segment, contributed largely to total revenue and margins. Sales
soared 35% to $729 million on higher volumes and prices.
Sales
volumes rose in the quarter due to the restart of a previously
idled cracking unit at the company’s Texas facility and growth in
plasticizer product lines and also to customer buying patterns for
acetyl chemicals.
Selling
prices increased due to higher raw material and energy costs and
also due to strong demand in the U.S. and tight industry supply.
Operating earnings were $88 million compared with $71 million in
the year-earlier quarter.
The
year-over-year growth was primarily driven by higher selling
prices, higher sales volumes and the increased benefits from
cracking propane to produce low-cost propylene, more than
offsetting increased raw material and energy costs.
Coatings, Adhesives,
Specialty Polymers and Inks: The segment’s revenues were
$491 million, up 18% year on year driven by growth in volumes and a
rise in prices. The higher sales volume resulted from strengthened
end-use demand in the packaging, transportation, and durable goods
markets, particularly in the U.S.
Operating
earnings were $99 million versus $92 million in the prior-year
quarter. The increase was due to higher selling prices, higher
sales volume and increased benefits from cracking propane to
produce low-cost propylene, which more than offset higher raw
material and energy costs.
Fibers:
Sales from the
segment grew 21% to $331 million on an increase in volumes,
favorable shift in product mix, and higher selling prices. The
favorable shift in product mix was mainly due to higher acetate tow
sales volume resulting from higher utilization of the recently
completed Korean acetate tow manufacturing facility.
Second-quarter 2011
operating earnings, were $93 million compared with $81 million in
the prior year quarter. The increase was primarily due to acetate
tow sales volume in Asia-Pacific and higher selling prices
partially offset by higher raw material and energy
costs.
Specialty
Plastics: Revenues jumped 23% to $334
million on increased selling price and higher sales
volume.
Operating
earnings in second quarter 2011, rose 76.2% to $37 million.
Operating earnings increased in the Asia Pacific region due to
higher selling prices and in the Europe, Middle East and Africa
region due to both higher sales volume and higher selling
prices.
Regional
Sales
Regionally,
first quarter revenues grew 26.4% in the United States and Canada
to $1004 million and 22.3% to $434 million in the Asia-Pacific.
Europe, Middle East and Africa revenues increased 30.3% to $370
million and Latin American revenues increased 6.9% to $77
million.
Liquidity
Cash and
cash equivalents stood at $634 million at the end of the second
quarter of 2011 versus $435 million at the end of the comparable
quarter of 2010. Second-quarter 2011 cash flows included $55
million of a total anticipated $110 million tax payment for the
gain on the sale of the PET business completed in first quarter
2011.
During
second quarter 2011, share repurchases totaled $103
million.
Outlook
Based on the
strong first half 2011 results, the company expects that it will
continue to deliver earnings growth in the second half of
2011.
The results
of the second quarter were driven by strong sales volumes and
higher prices and Eastman expects the trend to continue into the
third quarter as well. It expects to incur costs related to planned
and unplanned shutdowns that are expected to be approximately $25
million higher in the second half of 2011 compared with the first
half.
Even with
these higher costs, Eastman anticipates third quarter 2011 earnings
per share to be slightly higher than third quarter 2010 earnings
per share of $2.22 and expects full-year 2011 earnings per share to
be slightly higher than $9.25.
Zacks
Recommendation
Eastman
Chemical’s diversified chemical portfolio, along with its
integrated and diverse downstream businesses, is driving earnings.
Eastman benefits from business restructuring and cost-cutting
measures. The company has sold unprofitable units and closed down
poorly performing ones.
The company,
however, faces volatility in raw material and energy costs, higher
pension expenses and other growth-related costs.
Eastman
battles with large multinational companies such as
Celanese
Corp. (CE) and
The Dow
Chemical Co. (DOW) and
EI
DuPont de Nemours & Co. (DD) across its major business
segments.
Currently,
Eastman has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a
long-term (6 months and higher) Outperform
recommendation.
CELANESE CP-A (CE): Free Stock Analysis Report
DU PONT (EI) DE (DD): Free Stock Analysis Report
DOW CHEMICAL (DOW): Free Stock Analysis Report
EASTMAN CHEM CO (EMN): Free Stock Analysis Report
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