KINGSPORT, Tenn., July 26, 2018 – Eastman Chemical Company (NYSE:EMN) today announced reported earnings of $2.39 per diluted share for second quarter 2018 versus $2.00 per diluted share for second quarter 2017. Adjusted earnings were $2.22 per diluted share for second quarter 2018 versus $1.98 per diluted share for second quarter 2017. For detail of the adjustments and reconciliation to reported company and segment earnings for all periods presented, see Tables 3A and 4A.
"In second quarter, we delivered an 8 percent increase in revenue and strong earnings growth," said Mark Costa, Board Chair and CEO. "A significant contributor to the higher revenue was increased sales volume, with compelling 8 percent volume growth in the Additives & Functional Products and Advanced Materials segments driven by our innovation-led strategy. We remain confident that execution of our strategy will result in continued outstanding results going forward."
(In millions, except per share amounts)
Sales revenue $2,621 $2,419
Earnings before interest and taxes ("EBIT") $491 $420
Adjusted EBIT* $447 $420
Earnings per diluted share $2.39 $2.00
Adjusted earnings per diluted share* $2.22 $1.98
Net cash provided by operating activities $443 $431
Free cash flow* $342 $285
*For non-core and unusual items (primarily related to previously reported tax items and coal gasification incident) excluded from adjusted earnings and for adjusted provision for income taxes, calculation of free cash flow, and reconciliations to reported company and segment earnings and to cash provided by operating activities, see Tables 1, 3A, 4A, 4B, and 5B.
Segment Results 2Q 2018 versus 2Q 2017
Additives & Functional Products – Sales revenue increased due to higher sales volume across the segment, a favorable shift in foreign currency exchange rates, and higher selling prices. The higher sales volume and higher selling prices for most product lines, particularly animal nutrition and coatings and inks additives, were primarily attributed to improved market conditions and enhanced commercial execution. Reported EBIT included insurance proceeds in excess of costs in second quarter 2018 resulting from the coal gasification incident. Reported and adjusted EBIT increased primarily due to higher sales volume and a favorable shift in foreign currency exchange rates, partially offset by increased investment in growth.
Advanced Materials – Sales revenue increased primarily due to higher sales volume across the segment, including for premium products such as Tritan™ copolyester, Saflex® head-up displays ("HUD"), and performance films, as well as a favorable shift in foreign currency exchange rates. Reported EBIT included insurance proceeds in excess of costs in second quarter 2018 resulting from the coal gasification incident. Reported and adjusted EBIT increased primarily due to higher sales volume and improved product mix of premium products as well as a favorable shift in foreign currency exchange rates, partially offset by higher raw material and energy costs and increased investment in growth.
Chemical Intermediates – Sales revenue increased due to higher selling prices across most product lines, particularly for acetyl derivatives attributed to favorable market conditions and for olefin derivatives due to higher raw material and energy prices. Lower sales volume was due to lower merchant ethylene sales resulting from a planned manufacturing shutdown and supplier operational disruptions at our Texas City and Longview, Texas sites, partially offset by higher functional amines sales attributed to improvement in the agriculture and energy markets. Reported EBIT included insurance proceeds in excess of costs in second quarter 2018 resulting from the coal gasification incident. Excluding this unusual item, adjusted EBIT decreased primarily due to increased costs of approximately $25 million resulting from supplier operational disruptions at the Texas City and Longview, Texas sites and higher planned maintenance costs. The decrease was partially offset by higher selling prices more than offsetting higher raw material and energy costs and the reduced negative impact of hedges of commodity prices on raw material costs.
Fibers – Sales revenue increased due to sales of nonwovens innovation platform products previously reported in "Other," higher sales volume for acetate tow due to customer buying patterns, and continued growth in the textiles innovation platform. The higher sales volume was partially offset by lower acetate tow selling prices attributed to lower industry capacity utilization. Reported EBIT included insurance proceeds in excess of costs in second quarter 2018 resulting from the coal gasification incident. Excluding this unusual item, adjusted EBIT increased slightly primarily due to higher sales volume and earnings from nonwovens innovation platform products, mostly offset by lower selling prices and increased investment in growth most of which was previously reported in "Other."
Eastman generated $443 million in cash from operating activities during second quarter 2018, primarily due to strong net earnings partially offset by increased working capital. For second quarter 2018, cash insurance proceeds, net of cash used, for the coal gasification repair and restart were approximately $55 million. Share repurchases totaled $150 million in second quarter 2018. See Table 5A.
The company continues to expect to generate $1.1 billion of free cash flow (cash from operating activities less net capital expenditures). See Table 5B. Priorities for uses of available cash include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives and repurchasing shares.
Commenting on the outlook for full-year 2018, Costa said: "During the first half of the year, we delivered a 17 percent year-over-year increase in adjusted earnings per share. This performance was the result of strong volume growth in the specialty segments leveraging our innovation-driven growth model, as well as continued disciplined cost management, use of our robust free cash flow and a lower tax rate. Taking all of this together, we remain confident in our expectations for adjusted 2018 EPS growth to be between 10-14 percent."
The full-year 2018 projected earnings exclude any non-core, unusual, or non-recurring items in the remaining six months of 2018 and assume that the adjusted tax rate detailed in Tables 4A and 4B for first six months 2018 will be the actual rate for full-year 2018. 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 reported GAAP earnings without unreasonable efforts.
Tax Items and Revenue Recognition Accounting Change
In fourth quarter 2017, the Company recognized a provisional net increase to earnings of $339 million as a result of tax law changes, primarily the Tax Cuts and Jobs Act of 2017 and tax impact of outside-U.S. entity reorganizations, subject to adjustment during 2018. In second quarter 2018, the Company recognized a charge of $10 million to increase the one-time transition tax on the deferred foreign income component of the provisional net tax benefit recognized in fourth quarter 2017.
Beginning in first quarter 2018, the Company adopted Accounting Standards Codification 606 under which the Company recognizes revenue when control has been transferred to the customer, generally at the time shipment occurs. Under the previous revenue recognition accounting standard, the Company recognized revenue upon delivery of the goods. Second-quarter 2018 EBIT under the new method of revenue recognition was $4 million higher than it would have been under the former method of revenue recognition.
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 first quarter 2018 available, and the Form 10-Q to be filed for second quarter 2018 and to be available, on the Eastman web site at
www.eastman.com in the Investors, SEC filings section.
Conference Call and Webcast Information
Eastman will host a conference call with industry analysts on July 27, 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 2085270. 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, July 27, 2018 to 11:00 a.m. ET, August 6, 2018 at 888-203-1112 or 719-457-0820, passcode 2085270.
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
Media: Tracy Kilgore Addington
Investors: Greg Riddle