Eastman

Eastman Announces Fourth-Quarter and Full-Year 2017 Financial Results

KINGSPORT, Tenn., February 1, 2018 – Eastman Chemical Company (NYSE:EMN) today announced reported earnings of $4.01 per diluted share for fourth quarter 2017 versus $0.79 per diluted share for fourth quarter 2016. Adjusted earnings were $1.62 per diluted share for fourth quarter 2017 versus $1.51 per diluted share for fourth quarter 2016. Fourth-quarter 2017 adjusted earnings excludes non-core and unusual items, including $0.55 per diluted share of net costs resulting from the coal gasification incident (see "Coal Gasification Incident") and a $2.91 per share net benefit of one-time tax items primarily resulting from enactment of the Tax Cuts and Jobs Act of 2017 (see "Cash Flow and Tax Items"). For detail of the adjustments and reconciliations to reported company and segment earnings for all periods presented, see Tables 3A and 4.

"Looking at full year 2017, we delivered a compelling 13 percent increase in adjusted EPS and $1 billion of free cash flow," said Mark Costa, Board Chair and CEO. "Additionally, we ended the year with both solid fourth-quarter results and the safe and efficient repair of our coal gasification facility with minimal disruption to our customers. This performance demonstrates the strength of our portfolio and the benefits of our innovation-driven growth model. Our results also reflect the tremendous capability and determination of the Eastman team that is exemplified in our response to the coal gasification incident and two U.S. hurricanes while driving top line growth at the same time. We remain confident that execution of our strategy will continue to deliver outstanding results going forward."

 


(In millions, except per share amounts) 4Q17 4Q16 FY17 FY16
Sales revenue$2,362$2,188$9,549$9,008
     
Operating earnings                                                  2682521,5451,383
     

Adjusted operating earnings*

 

3543361,6311,534
Earnings per diluted share4.01         0.79            10.09  5.75
     

Adjusted earnings per diluted share*

                 

1.621.51 7.61  6.76
Net cash provided by operating activities6463901,657

1,385

 

Adjusted net cash provided by operating activities*6465401,6571,535
     
Adjusted free cash flow*                                                                 435         2891,008   909

*For non-core and unusual items excluded from adjusted earnings, calculation of adjusted net cash provided by operating activities and adjusted free cash flow (adjusted cash from operating activities minus capital expenditures), and reconciliations to reported company and segment earnings and cash provided by operating activities, see Tables 1, 3A, 4, and 5B.  

 

Segment Results 4Q 2017 versus 4Q 2016

Additives & Functional Products – Sales revenue increased due to stronger sales volume for most product lines, a favorable shift in foreign currency exchange rates, and higher selling prices. Reported and adjusted operating earnings increased primarily due to higher sales volume, higher selling prices, and fixed cost leverage.

Advanced Materials – Sales revenue increased primarily due to higher sales volume and improved product mix of premium products. Reported operating earnings declined due to costs resulting from the coal gasification incident. Adjusted operating earnings increased primarily due to higher sales volume and improved product mix of premium products, partially offset by increased costs of growth initiatives and startup costs for new manufacturing capacity, and hurricane related costs.

Chemical Intermediates – Sales revenue increased due to higher selling prices attributed to higher raw material prices and continued improved market conditions. The increase was partially offset by lower sales volume, particularly of acetyl derivative products due to the coal gasification incident. Reported operating earnings declined due to costs resulting from the coal gasification incident. Adjusted operating earnings increased primarily due to higher selling prices and lower commodity hedge costs, partially offset by lower sales volume and higher raw material and energy costs.

Fibers Sales revenue decreased primarily due to lower selling prices and lower sales volume, particularly for acetate tow. Lower acetate tow selling prices were primarily attributed to lower industry capacity utilization. Lower acetate tow sales volume was primarily due to customer buying patterns. Reported operating earnings were negatively impacted by costs resulting from the coal gasification incident. Reported and adjusted operating earnings declined due to lower selling prices and lower sales volume.

 

Segment Results 2017 versus 2016

Additives & Functional Products – Sales revenue increased primarily due to stronger sales volume across the segment and higher selling prices. Reported and adjusted operating earnings increased primarily due to higher sales volume, higher selling prices, fixed cost leverage, and lower commodity hedge costs.

Advanced Materials – Sales revenue increased primarily due to higher sales volume and improved product mix of premium products. Reported and adjusted operating earnings increased primarily due to higher sales volume, improved product mix of premium products, and lower unit costs due to higher capacity utilization, partially offset by increased costs of growth initiatives.

Chemical Intermediates – Sales revenue increased due to higher selling prices attributed to higher raw material prices and improved market conditions. The increase was partially offset by lower sales volume, particularly of acetyl derivative products, due to the coal gasification incident. Reported operating earnings were negatively impacted by costs due to the coal gasification incident. Reported and adjusted operating earnings increased primarily due to higher selling prices, lower commodity hedge costs, lower scheduled maintenance costs, and lower operating costs, partially offset by higher raw material and energy costs.

Fibers Sales revenue decreased primarily due to lower selling prices and lower sales volume, particularly for acetate tow. Lower acetate tow selling prices were primarily attributed to lower industry capacity utilization. Lower acetate tow sales volume was primarily attributed to reduced sales in China. Reported operating earnings were negatively impacted by costs resulting from the coal gasification incident. Reported and adjusted operating earnings declined due to lower selling prices and lower sales volume, partially offset by lower operating costs resulting from recent actions.

 

Cash Flow and Tax Items

In 2017, cash from operating activities was $1.66 billion and free cash flow (cash from operating activities minus capital expenditures) was $1 billion. Priorities for uses of available cash include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives, and repurchasing shares. In 2017, the company returned $646 million to stockholders, with $296 million of dividends and $350 million of share repurchases. In addition, the company repaid $350 million of debt, with total borrowings reduced by $163 million including the negative impact of currency translation on the carrying value of euro-denominated borrowings.

As a result of recent tax law changes (primarily the Tax Cuts and Jobs Act of 2017), the company recognized a net increase to earnings of $421 million in fourth quarter 2017 (See Table 1). This increase primarily resulted from a one-time revaluation of deferred tax liabilities partially offset by a one-time transition tax on deferred foreign income and adjustments to valuation allowances on foreign tax credit carryforwards. These earnings impacts of recent tax law changes in fourth quarter 2017 are provisional and are subject to adjustment during the measurement period of up to one year following the December 2017 enactment of the Tax Cuts and Jobs Act.

 

Outlook

Commenting on the outlook for full-year 2018, Costa said: "We made great progress in 2017 demonstrating the strength of our portfolio, including strong growth from innovative, high-margin products in our specialty businesses, and we expect this momentum will continue in 2018. We also expect the use of our strong and increasing free cash flow along with a modestly lower tax rate will contribute to earnings growth. In addition, we will continue to make growth investments in 2018 and also expect higher scheduled maintenance costs. Raw material and energy prices, particularly for olefins, are expected to be volatile through the year. Taking all of this together, consistent with our previous guidance, we expect adjusted EPS growth in 2018 to be between 8-12 percent."

Projected full-year 2018 earnings exclude any non-core, unusual, or non-recurring items. Our 2018 financial results forecasts do not include non-core items (such as mark-to-market pension and other postretirement benefit gain or loss) or any unusual or non-recurring items, and we accordingly are unable to reconcile projected full-year 2018 earnings excluding non-core and any unusual or non-recurring items to projected GAAP earnings without unreasonable efforts.

 

Coal Gasification Incident

As previously reported, on October 4, 2017 an explosion in the Kingsport site's coal gasification area disrupted manufacturing operations. There were no serious injuries and no impact to the environment. Due to the unique advantages of our scale and integration, as well as the dedication of our teams of Eastman employees and contractors, the company was able to safely and efficiently repair the facility. The repairs to the coal gasification facility were mechanically complete in late December 2017, and last week the facility resumed normal operations. Net costs of the disruption, repairs and reconstruction of the coal gasification facility, and restart of operations reduced fourth-quarter 2017 pretax earnings by $112 million. In addition, lost sales revenue attributed to the coal gasification disruption was limited to approximately $40 million, primarily in the Chemical Intermediates segment. The cash impact of the incident in fourth quarter 2017 was minimal, with working capital benefits and insurance reimbursement largely offsetting cash expenditures for disruption and repairs.

 

Forward-Looking Statements

This news release includes forward-looking statements concerning current expectations and assumptions for future global economic conditions; competitive position and acceptance of specialty products in key markets; mix of products sold; raw material and energy prices and costs, and other costs; and revenue, earnings, and cash flow for full year 2018. Such expectations and assumptions are based upon certain preliminary information, internal estimates, and management assumptions, expectations, and plans, and are subject to a number of risks and uncertainties inherent in projecting future conditions, events, and results. Actual results could differ materially from expectations and assumptions expressed in the forward-looking statements if one or more of the underlying assumptions or expectations prove to be inaccurate or are unrealized. Important factors that could cause actual results to differ materially from such expectations are and will be detailed in the company's filings with the Securities and Exchange Commission, including the Form 10-Q filed for third quarter 2017 available, and the Form 10-K to be filed for 2017 and to be available, on the Eastman web site at www.eastman.com in the Investors, SEC filings section, and in the slides and remarks in the public conference call and webcast detailed below.

 

Conference Call and Webcast Information

Eastman will host a conference call with industry analysts on February 2, 2018 at 8:00 a.m. ET. To listen to the live webcast of the conference call and view the accompanying slides, go to www.investors.eastman.com, Events & Presentations. To listen via telephone, the dial-in number is 719-457-1036, passcode number 8130386. A web replay, a replay in downloadable MP3 format, and the accompanying slides will be available at www.investors.eastman.com, Events & Presentations. A telephone replay will be available continuously from 11:00 a.m. ET, February 2, to 11:00 a.m. ET, February 12, at 888-203-1112 or 719-457-0820, passcode 8130386.

Eastman is a global advanced materials and specialty additives company that produces a broad range of products found in items people use every day. With a portfolio of specialty businesses, Eastman works with customers to deliver innovative products and solutions while maintaining a commitment to safety and sustainability. Its market-driven approaches take advantage of world-class technology platforms and leading positions in attractive end-markets such as transportation, building and construction and consumables. Eastman focuses on creating consistent, superior value for all stakeholders. As a globally diverse company, Eastman serves customers in more than 100 countries and had 2017 revenues of approximately $9.5 billion. The company is headquartered in Kingsport, Tennessee, USA and employs approximately 14,500 people around the world. For more information, visit www.eastman.com.

 

Contacts:

Media:  Tracy Kilgore Addington

423-224-0498 / tracy@eastman.com

Investors:  Greg Riddle

212-835-1620 / griddle@eastman.com

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