Eastman Chemical Company (NYSE:EMN) announced its fourth-quarter and full-year 2019 financial results.
|(In millions, except per share amounts)||4Q19||4Q18||FY19||FY18|
|Earnings before interest and taxes ("EBIT")||62||135||1,120||1,552|
|Earnings per diluted share||0.19||0.24||5.48||7.56|
Adjusted earnings per diluted share*
|Net cash provided by operating activities||671||740||1,504||1,543|
|Free cash flow*||554||593||1,079||1,080|
*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, 4, 5A and 5B.
"We demonstrated resilience in the fourth quarter despite continued difficult global economic conditions impacting consumer discretionary markets such as transportation," said Mark Costa, Board Chair and CEO. "Notwithstanding the challenging conditions, for the year, we continued to make strong progress growing new business revenue from innovation and market development initiatives, particularly in the Advanced Materials segment. In addition, with full-year free cash flow approaching $1.1 billion, we once again showed our capability to generate strong cash flow. Although we don't expect global economic conditions to improve in the coming year, we remain confident in our strategy and the strength of our cash flow going forward."
Segment Results 4Q 2019 versus 4Q 2018
Additives & Functional Products – Sales revenue decreased primarily due to lower selling prices, lower sales volume, and an unfavorable shift in foreign currency exchange rates. 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 certain animal nutrition products, tire additives, and adhesives resins. The lower sales volume was primarily attributed to weak end-market demand resulting from continuing global trade-related pressures, particularly in the transportation market, as well as weak demand in the agriculture market.
Reported EBIT included impairment charges in 2018 and 2019. Adjusted EBIT decreased primarily due to lower sales volume, an unfavorable shift in foreign currency exchange rates, and higher planned manufacturing site maintenance costs partially offset by lower raw material costs more than offsetting lower selling prices.
Advanced Materials – Sales revenue increased due to higher sales volume and more favorable product mix due to strong sales of premium products including Tritan™ copolyester, paint protection film, and Saflex™ acoustic and architectural interlayers. The higher sales volume and improved product mix was partially offset by modestly lower selling prices attributed to lower raw material prices.
Reported and adjusted EBIT increased due to higher sales volume and more favorable product mix as well as lower raw material costs more than offsetting lower selling prices.
Chemical Intermediates – Sales revenue decreased across the segment primarily due to lower selling prices due to lower raw material prices and increased competitive activity.
Reported and adjusted EBIT decreased primarily due to increased planned manufacturing site maintenance costs.
Fibers – Sales revenue increased due to higher acetate tow sales volume attributed to the impact of the U.S.-China trade dispute on fourth-quarter 2018 business and increased sales of textiles products including from the acquired INACSA cellulosic yarn business.
Reported and adjusted EBIT increased slightly due to increased acetate tow sales volume.
Segment Results 2019 versus 2018
Additives & Functional Products – Sales revenue decreased primarily due to lower sales volume, lower selling prices, and an unfavorable shift in foreign currency exchange rates. The lower sales volume was primarily attributed to weaker end-market demand resulting from global trade-related pressures, particularly in transportation markets and other consumer discretionary end markets. Lower selling prices were primarily due to lower raw material prices, including for care chemicals due to cost pass-through contracts, and increased competitive pressure in markets for tire additives, animal nutrition products, and adhesives resins.
Reported EBIT included impairment charges in 2018 and 2019 and coal gasification incident insurance in excess of costs in 2018. Adjusted EBIT decreased primarily due to lower sales volume, less favorable product mix, and an unfavorable shift in foreign currency exchange rates. The unfavorable product mix was primarily due to lower sales of coatings additives products attributed to reduced automotive sales in China.
Advanced Materials – Sales revenue decreased due to slightly lower sales volume and an unfavorable shift in foreign currency exchange rates. Strong growth in our premium products, including paint protection film, Tritan™ copolyester, and Saflex™ acoustic and architectural interlayers, was offset by declines in other copolyester products and standard interlayers related to underlying market declines in transportation and consumer durable end markets.
Reported and adjusted EBIT increased primarily due to lower raw material costs and increased sales of certain premium products partially 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 across the segment attributed to lower raw material prices and increased competitive activity. Sales revenue was also negatively impacted by lower functional amines products sales volume attributed to weaker demand in agricultural end markets resulting from wet weather in North America and lower intermediates products sales volume attributed to increased competitive activity.
Reported EBIT included an impairment charge in 2019 and coal gasification incident insurance in excess of costs in 2018. Adjusted EBIT decreased primarily due to lower selling prices more than offsetting lower raw material costs and lower sales volume, which were partially offset by benefits from the recent modifications to olefins cracking units to allow use of refinery-grade propylene feedstock.
Fibers – Sales revenue decreased primarily due to lower acetate tow sales volume attributed to weakened market demand resulting from general market decline and customer buying patterns.
Reported EBIT included coal gasification incident insurance in excess of costs in 2018. Adjusted EBIT decreased primarily due to lower acetate tow sales volume.
In 2019, cash from operating activities was $1.5 billion and free cash flow (cash from operating activities less net capital expenditures) was $1.1 billion. Priorities for uses of available cash include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives, and repurchasing shares. In 2019, the company returned $668 million to stockholders, with $343 million of dividends and $325 million of share repurchases. In addition, the company repaid $370 million of debt, with total borrowings reduced by $386 million including the impact of currency translation on the carrying value of euro-denominated borrowings. See Tables 5A, 5B, and 6.
Commenting on the outlook for full-year 2020, Costa said: "We enter 2020 in a period of significant uncertainty related to macro factors that are out of our control. In this environment, we are focused on what we can control, including growing new business revenue by leveraging our innovation-driven growth model, aggressive cost management, and disciplined capital allocation. We are currently assuming that slow growth continues in 2020 at levels similar to 2019, although with less inventory destocking. Taking all of this together, we expect 2020 adjusted earnings per share to be between $7.20 and $7.60 and free cash flow to be between $1.0 billion and $1.1 billion."
The full-year 2020 projected earnings exclude any non-core, unusual or non-recurring items. Our 2020 financial results forecasts do not include non-core items (such as mark-to-market pension and other postretirement benefit gain or loss and asset impairments and restructuring charges) or any unusual or non-recurring items, and we accordingly are unable to reconcile projected full-year 2020 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, market, and business 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 2020. 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 public disclosures, including filings with the Securities and Exchange Commission (including the Form 10-Q filed for third quarter 2019 available, and the Form 10-K to be filed for 2019 and to be available) and Company press releases and pre-noticed public investor presentations 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 January 31, 2020 at 8:00 a.m. ET. To listen to the live webcast of the conference call and view the accompanying slides, go to investors.eastman.com, Events & Presentations. The slides to be discussed during the call and webcast will be available at investors.eastman.com at approximately 5:00 p.m. ET on January 30, 2020. To listen via telephone, the dial-in number is 323-994-2093, passcode number 2348789. A web replay, a replay in downloadable MP3 format, and the accompanying slides will be available at investors.eastman.com, Events & Presentations. A telephone replay will be available continuously from 11:00 a.m. ET, January 31, 2020 to 11:00 a.m. ET, February 10, 2020 at 888-203-1112 or 719-457-0820, passcode 2348789.
Founded in 1920, Eastman is a global specialty materials company that produces a broad range of products found in items people use every day. With the purpose of enhancing the quality of life in a material way, Eastman works with customers to deliver innovative products and solutions while maintaining a commitment to safety and sustainability. The company’s innovation-driven growth model takes advantage of world-class technology platforms, deep customer engagement, and differentiated application development to grow its leading positions in attractive end-markets such as transportation, building and construction, and consumables. As a globally inclusive and diverse company, Eastman employs approximately 14,500 people around the world and serves customers in more than 100 countries. The company had 2019 revenues of approximately $9.3 billion and is headquartered in Kingsport, Tennessee, USA.