KINGSPORT, Tenn., July 25, 2019 – Eastman Chemical Company (NYSE: EMN) announced its second-quarter 2019 financial results.
(In millions, except per share amounts)
Sales revenue $2,363 $2,621
Earnings before interest and taxes ("EBIT") $371 $491
Adjusted EBIT* $389 $447
Earnings per diluted share $1.85 $2.39
Adjusted earnings per diluted share* $1.99 $2.22
Net cash provided by operating activities $422 $443
Free cash flow* $330 $342
*For non-core and unusual items (including related to the previously reported coal gasification incident) excluded from adjusted earnings and for adjusted provision for income taxes, calculation of free cash flow and of segment adjusted EBIT margins, and reconciliations to reported company and segment earnings and to cash provided by operating activities, see Tables 1, 3A, 3B, 4A, 4B, 5A and 5B.
"In the second quarter, we continued to face challenging global economic conditions resulting from trade issues impacting consumer discretionary markets such as transportation and consumer durables. This slower global economic growth led to reduced demand and unfavorable product mix for our specialty products, particularly in China and Europe," said Mark Costa, Board Chair and CEO. "Despite these challenges, for the second quarter 2019 we grew adjusted EBIT sequentially by 11 percent. I am particularly proud of our employees around the world who are driving growth in new business revenue leveraging our innovation-driven growth model and aggressively managing costs in this challenging economic environment." See Table 4A for reconciliation of first-quarter 2019 adjusted earnings to reported earnings.
Segment Results 2Q 2019 versus 2Q 2018
Additives & Functional Products – Sales decreased due to lower sales volume and less favorable product mix, lower selling prices and an unfavorable shift in foreign currency exchange rates. The lower sales volume and less favorable product mix was primarily attributed to weaker end-market demand resulting from global trade-related pressures, particularly in transportation and other consumer discretionary markets in China and Europe. In addition to challenges with trade pressures, weakened demand for animal nutrition products was attributed to outbreaks of swine fever in China. Lower selling prices were primarily due to lower raw material prices, including for care chemicals cost pass-through contracts, and also attributed to increased competitive pressure, particularly in markets for adhesive resins and tire additives.
Reported and adjusted EBIT decreased primarily due to lower sales volume, less favorable product mix and an unfavorable shift in foreign currency exchange rates, partially offset by continued cost management. Lower raw material costs offset lower selling prices.
Advanced Materials – Sales revenue decreased due to lower sales volume and an unfavorable shift in foreign currency exchange rates. The lower sales volume was attributed to uncertainty caused by the U.S.-China trade dispute and reduced global automotive sales.
Second-quarter 2018 reported EBIT included insurance in excess of costs from the coal gasification incident. Adjusted EBIT increased slightly due to more favorable product mix resulting from increased sales of certain premium products, including paint protection film and acoustic interlayers, as well as growth of architectural interlayers, continued cost management, and lower raw material costs, which were mostly offset by lower sales volume and an unfavorable shift in foreign currency exchange rates.
Chemical Intermediates – Sales revenue decreased primarily due to lower selling prices for both olefins and acetyls products resulting from raw material price declines and increased competitive activity. Sales revenue was also negatively impacted by lower functional amines products sales volume attributed to weakened, weather-related demand in agricultural end markets.
Second-quarter 2018 reported EBIT included insurance in excess of costs from the coal gasification incident. Adjusted EBIT decreased slightly primarily due to lower selling prices in excess of lower raw material costs, mostly offset by lower costs in comparison to the prior period resulting from supplier operational disruptions, lower planned maintenance costs and continued cost management.
Fibers – Sales revenue decreased primarily due to lower acetate tow sales volume attributed to weakened market demand resulting from global trade-related pressures, customer buying patterns and general market decline.
Second quarter 2018 reported EBIT included insurance in excess of costs from the coal gasification incident. Adjusted EBIT decreased due to lower acetate tow sales volume, partially offset by lower raw material costs and continued cost management.
The company expects to approach $1.1 billion of free cash flow (cash from operating activities less net capital expenditures) in 2019. Priorities for uses of available cash include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives and repurchasing shares.
In second quarter 2019, the company generated $422 million cash from operating activities and free cash flow was $330 million. In second quarter 2019, the company returned $211 million to stockholders, with $86 million of dividends and $125 million of share repurchases. See Tables 5A and 5B.
Commenting on the outlook for full-year 2019, Costa said: "We once again delivered sequential adjusted earnings growth in the second quarter, reflecting increased new business revenue as we leverage our innovation-driven growth model and continued aggressive cost management. However, we continue to operate in a difficult global business environment due to the impact of the U.S.-China trade dispute and other factors. As a result, we no longer expect underlying macroeconomic conditions to improve in the second half of the year, except for reduced customer inventory destocking. We also expect that we will benefit in the second half from cost reduction actions and the flow through of lower-cost raw materials. Taking all of this together, we expect 2019 adjusted EPS to be between $7.50 and $8.00."
The full-year 2019 projected earnings exclude any non-core, unusual, or non-recurring items in the remaining six months of 2019 and assume that the adjusted tax rate detailed in Tables 4A and 4B for first six months 2019 will be the actual rate for full-year 2019. Our 2019 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 2019 earnings excluding non-core and any unusual or non-recurring items to reported GAAP earnings without unreasonable efforts.
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 2019. 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 2019 available, and the Form 10-Q to be filed for second quarter 2019 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 26, 2019 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. The slides to be discussed during the call and webcast will be available at
www.investors.eastman.com at approximately 5:00 p.m. ET on July 25, 2019. To listen via telephone, the dial-in number is
323-994-2093, passcode number 6597130. 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 26, 2019 to 11:00 a.m. ET, Aug. 6, 2019 at
719-457-0820, passcode 6597130.
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 2018 revenues of approximately $10 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