KINGSPORT, Tenn., April 26, 2018 – Eastman Chemical Company (NYSE:EMN) today announced reported earnings of $2.00 per diluted share for first quarter 2018 versus $1.89 per diluted share for first quarter 2017. Adjusted earnings were $2.23 per diluted share for first quarter 2018 versus $1.83 per diluted share for first quarter 2017. For detail of the adjustments and reconciliation to reported company and segment earnings for all periods presented, see Tables 3A and 4A.
"We are off to an excellent start in 2018, with year-over-year adjusted EPS growth of 22 percent in the first quarter," said Mark Costa, Board Chair and CEO. "Our innovation-driven growth model is continuing to deliver impressive volume growth in our specialty businesses as demonstrated by their above market growth in the quarter. Disciplined capital allocation and a sustained focus on cost management also are contributing to our strong results. We remain confident that execution of our strategy will result in continued outstanding results going forward."
(In millions, except per share amounts)
Sales revenue $2,607 $2,303
Earnings before interest and taxes ("EBIT") $409 $401
Adjusted EBIT* $459 $401
Earnings per diluted share $2.00 $1.89
Adjusted earnings per diluted share* $2.23 $1.83
Net cash (used in) provided by operating activities ($35) $52
Free cash flow* ($113) ($81)
*Beginning January 1, 2018, the Company's primary measure of operating performance for all presented periods is earnings before interest and taxes ("EBIT"). For non-core and unusual items (primarily net costs from the previously reported 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 1Q 2018 versus 1Q 2017
Additives & Functional Products – Sales revenue increased due to higher sales volume, higher selling prices, and a favorable shift in foreign currency exchange rates. The higher sales volume and higher selling prices for most product lines, particularly animal nutrition, care chemicals, and tire additives, were attributed to improved market conditions and enhanced commercial execution. Reported and adjusted EBIT increased due to higher sales volume, higher selling prices, and a favorable shift in foreign currency exchange rates, partially offset by higher costs of growth initiatives.
Advanced Materials – Sales revenue increased primarily due to improved product mix from higher sales volume of premium products, including TritanTM copolyester, Saflex® head-up displays ("HUD"), Saflex® acoustic interlayers, and performance films, and a favorable shift in foreign currency exchange rates.
Reported and adjusted EBIT increased due to higher sales volume, improved product mix, and a favorable shift in foreign currency exchange rates, partially offset by higher costs of growth initiatives.
Chemical Intermediates – Sales revenue increased due to higher selling prices across most product lines attributed to higher raw material and energy prices and continued improvement in market conditions. Reported EBIT declined due to costs from the coal gasification incident. Adjusted EBIT increased primarily due to higher selling prices more than offsetting higher raw material and energy costs.
Fibers – Sales revenue increased due to higher sales volume for acetate tow and acetate flake resulting from the timing of recognition of revenue under the new revenue recognition accounting standard, and sales revenue in first quarter 2018 from textiles and nonwovens innovation platform products previously reported in "Other." Reported EBIT declined due to costs from the coal gasification incident. Adjusted EBIT increased primarily due to higher sales volume.
The company continues to expect to generate greater than $1.1 billion of free cash flow (cash from operating activities less net capital expenditures). Priorities for uses of available cash include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives, and repurchasing shares.
Eastman used $35 million in cash for operating activities during first quarter 2018. Strong earnings were partially offset by a normal seasonal increase in working capital. Net cash used for coal gasification operations repair and restart was approximately $75 million in first quarter 2018. Share repurchases totaled $100 million during the quarter. See Tables 5A and 5B.
Commenting on the outlook for full-year 2018, Costa said: "Our compelling performance in the first quarter gives us increasing confidence in our growth expectations for the year. Our innovation-driven growth model continues to deliver results, driving impressive growth in our specialty businesses. In addition, the use of our strong free cash flow along with a modestly lower tax rate is contributing to earnings growth. We continue to work hard to offset volatility in raw material and energy prices, particularly olefins. Taking all of this together, we are increasing 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 nine months of 2018, and assumes that the adjusted tax rate detailed in Tables 4A and 4B for first quarter 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 projected GAAP earnings without unreasonable efforts.
Revenue Recognition Accounting Change and Segment Product Changes
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. The Company adopted the new revenue recognition standard using the modified retrospective approach so that revenue for all periods prior to first quarter 2018 continues to be reported under the previous standard which resulted in an increase to retained earnings of $53 million after tax for net earnings attributed to product shipped but not yet delivered at December 31, 2017. This change is not expected to have a material impact on full-year sales revenue or EBIT when comparing 2018 under the new revenue recognition standard to previous years under the previous standard as both years will continue to have 52 weeks of revenue. However, the difference in timing of recognition of revenues under the current and former accounting standards is expected to have some impact on seasonal revenue and EBIT trends during 2018 compared to previous years.
Beginning first quarter 2018, sales revenue and innovation costs from the textiles and nonwovens fiber innovation platform products previously reported in "Other" are reported in the Fibers segment due to accelerating commercial progress of growth initiatives. In addition, as a result of recent changes in the management of products and operations to better align resources for growth initiatives, certain products previously reported in the Chemical Intermediates segment are beginning first quarter 2018 reported in the Additives & Functional Products segment.
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, cash flow, and debt 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-K filed for 2017 available, and the Form 10-Q to be filed for first quarter 2018 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 April 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 9070357. 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, April 27 to 11:00 a.m. ET, May 7 at 888-203-1112 or 719-457-0820, passcode 9070357.
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 14,000 people around the world. For more information, visit
Media: Tracy Kilgore Addington
Investors: Greg Riddle