Eastman Chemical Company (NYSE:EMN) announced its second-quarter 2021 financial results.
|(In millions, except per share amounts)||2Q21||1Q21||2Q20|
|Earnings (loss) before interest and taxes ("EBIT")||(56)||389||54|
|Earnings (loss) per diluted share||(1.07)||1.99||0.20|
|Adjusted earnings per diluted share*||2.46||2.13||0.85|
|Net cash provided by operating activities||426||216||436|
|Free cash flow*||319||125||339|
*For non-core items excluded from adjusted earnings and for adjusted provision for income taxes, calculation of free cash flow, segment adjusted EBIT margins, and net debt, and reconciliations to reported company and segment earnings and to cash provided by operating activities and total borrowings for all periods presented in this release, see Tables 3A, 3B, 4A, 4B, 5A, 5B, and 6.
"Our strong second-quarter results are directly related to the hard work and exceptional dedication of Eastman employees around the world," said Mark Costa, Board Chair and CEO. "Second-quarter revenue and adjusted EPS were both quarterly records reflecting continued improvement in global economic growth, the benefit of our innovation-driven growth model, and our outstanding ability to execute. In our specialty businesses, we grew more than our end markets thanks to the progress we are making on our innovation and market development initiatives. Our focus on free cash flow resulted in strong performance in the first half of the year, with higher free cash flow than first half 2020."
Costa continued, "We remain focused on creating value for all of our stakeholders. We are enabling our customers to win through innovation across our markets. We are also making significant progress on our circular economy platforms, which is expanding how we grow while contributing to the solution for a serious global environmental challenge. At the same time, we continue to invest in our employees' capabilities to grow the company. We remain confident that the disciplined execution of our strategy will enable us to build on our strong value creation in 2021 into 2022 and beyond for our investors."
Corporate Results 2Q 2021 versus 2Q 2020 and 1Q 2021
Compared to second quarter 2020, sales revenue increased 38 percent and was higher across all reporting segments. Volume / mix increased 20 percent, led by strong growth in Advanced Materials and Additives & Functional Products, and selling prices increased 16 percent, led by strong pricing in Chemical Intermediates.
The large increase in revenue was due to strong demand recovery across key end markets, including transportation, building and construction, and consumer durables in comparison to second quarter 2020, which was acutely impacted by lockdowns and other weakened business conditions resulting from COVID-19. Higher selling prices were due to higher raw material, energy, and distribution prices attributed to economic recovery.
Compared to second quarter 2020, adjusted EBIT increased significantly due to continued strong demand across key end markets, leading to higher volumes and more favorable product mix led by increased sales of specialty products in Advanced Materials and Additives & Functional Products. Spreads were higher due to Chemical Intermediates price increases that outpaced higher raw material costs.
Compared to first quarter 2021, sales revenue increased led by higher selling prices due to higher raw material prices, higher distribution costs, and tight market conditions, particularly in the Chemical Intermediates segment. Volume / mix growth of 2 percent was due to continued strong demand across key end markets, including building & construction and consumer durables. Adjusted EBIT increased due to higher spreads between selling prices and raw material, energy, and distribution costs, particularly in Chemical Intermediates, and more favorable product mix, led by sales of specialty products in the Advanced Materials and Additives & Functional Products segments.
Strong EBIT growth was partially offset by higher distribution costs, raw material supply shortages, and higher planned manufacturing maintenance costs.
Segment Results 2Q 2021 versus 2Q 2020 and 1Q 2021
Additives & Functional Products – Compared to second quarter 2020, sales revenue increased 35 percent driven by 23 percent volume / mix growth and a 9 percent increase in selling prices.
Sales volume increased due to recovery in key end markets negatively impacted by COVID-19. More favorable product mix was partially due to increased sales of coatings additives products. Higher selling prices were primarily due to higher raw material prices. Adjusted EBIT increased due to more favorable product mix and higher sales volumes, partially offset by modestly lower spreads.
Compared to first quarter 2021, sales revenue increased due to higher selling prices attributed primarily to a continuing increase in raw material prices. Sales volume / mix was flat as increased volume in building & construction end markets was offset by limited product availability resulting from planned manufacturing maintenance shutdowns.
Adjusted EBIT was slightly lower due to higher planned manufacturing maintenance costs, partially offset by increased spreads.
Advanced Materials – Compared to second quarter 2020, sales revenue increased 36 percent primarily driven by 31 percent volume / mix growth.
More favorable product mix across the segment was led by increased sales of premium products including performance films and specialty plastics products. Higher sales volume was due to recovery in key end markets negatively impacted by COVID-19.
Adjusted EBIT increased due to higher sales volumes and more favorable product mix, partially offset by modestly lower spreads.
Compared to first quarter 2021, sales revenue increased particularly for specialty plastics in consumer durables end markets as the impact of innovation and market development initiatives resulted in growth that was more than the underlying markets. Selling prices increased due to strong end-market demand for specialty plastics products and overall higher raw material and distribution prices. Adjusted EBIT was slightly higher as increased volume / mix and higher selling prices were mostly offset by higher raw material costs, higher distribution costs, and continued investment in growth.
Chemical Intermediates – Compared to second quarter 2020, sales revenue increased 60 percent mostly driven by a 51 percent increase in selling prices due to higher raw material prices. Adjusted EBIT increased primarily due to higher spreads as selling prices outpaced higher raw material and energy costs.
Compared to first quarter 2021, sales revenue increased due to higher selling prices resulting from a continued increase in raw material prices and tight market conditions. Adjusted EBIT increased due to higher spreads.
Fibers – Compared to second quarter 2020, sales revenue increased 6 percent due to 7 percent volume / mix growth partially offset by 2 percent lower selling prices.
Higher sales volume was driven by the continued recovery of the textiles end market, which was negatively impacted by COVID-19. Lower selling prices were mostly due to previously negotiated multi-year contracts for acetate tow. EBIT decreased as higher textiles sales volume was more than offset by lower selling prices and the discontinuation of a tobacco specialty product.
Compared to first quarter 2021, sales revenue increased 3 percent due to increased volume / mix attributed in part to continued recovery in textiles end markets. EBIT was lower primarily due to higher manufacturing maintenance shutdown costs.
In first half 2021, cash from operating activities was $642 million. Free cash flow (cash from operating activities less net capital expenditures) was $444 million, up approximately 8 percent from first half 2020 despite a use of cash for an increase in working capital primarily due to improved economic and business conditions. See Tables
5A and 5B. In first half 2021, the company returned $328 million to stockholders through dividends and share repurchases.
Priorities for uses of available cash for 2021 include payment of the quarterly dividend, bolt-on acquisitions, share repurchases, and further reduction of net debt.
Agreement to Sell Tire Additives Business Product Lines
As previously reported, Eastman entered into a definitive agreement with an affiliate of One Rock Capital Partners, LLC ("One Rock") to sell rubber additives (including Crystex™ insoluble sulfur and Santoflex™ antidegradants) and other product lines and related assets and technology of the global tire additives business of its Additives & Functional Products segment. The sale does not include the Eastman Impera™ and other performance resins product lines of the tire additives business. The total sale price of $800 million consists of $725 million cash at closing and an additional amount of up to $75 million to be paid based on performance of the rubber additives business post-closing through 2023. As of the definitive agreement date and until the sale, the assets and liabilities ("disposal group") included in the sale will be reported separately on the Unaudited Consolidated Statements of Financial Position as held for sale. A preliminary loss on business held for sale is recognized in the second quarter (the difference in net book value of the disposal group and total sale price and other consideration, anticipated costs to sell and the value of certain continuing transition services and agreements). Upon the change in classification to held for sale, depreciation and amortization charges of assets within the disposal group ceased. Revenue for the tire additives product line represented 14 percent of Additives & Functional Products segment revenue in 2020.
Commenting on the outlook for full-year 2021, Costa said: "Our employees around the world continue to do a great job executing in a challenging environment, mitigating the ongoing impact of COVID-19, supply chain disruptions, and overall tight market conditions. We delivered record first-half adjusted EPS and are on track for continued strong performance in the second half as we grow faster than recovering end markets due to our innovation-driven growth model. We also remain disciplined on costs as we implement our operations transformation program. With strong first-half results and continued momentum into the second half, we now expect 2021 adjusted EPS to be between $8.80 and $9.20. We are also increasing our expectation for free cash flow to greater than $1.1 billion, which would be the fifth consecutive year of free cash flow above $1 billion."
The full-year 2021 projected earnings exclude any non-core, unusual or nonrecurring items. Our financial results forecasts do not include non-core items (such as mark-to-market pension and other postretirement benefit gain or loss, asset impairments and restructuring charges and loss on business held for sale) or any unusual or non- recurring items, and we accordingly are unable to reconcile projected 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 and the impact of the COVID-19 coronavirus pandemic on demand in key end markets; competitive position and acceptance of specialty products in key markets; mix of products sold; capacity utilization, manufacturing costs, and cost reductions; and revenue, earnings, cash flow, cash and cash equivalents, and debt repayment for full-year 2021. 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 2021 available, and the Form 10-Q to be filed for second quarter 2021 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 August 3, at 9:00 a.m. ET. To listen to the live webcast of the conference call and view the accompanying slides and prepared remarks, go to investors.eastman.com, Events & Presentations. The slides and prepared remarks to be discussed during the call and webcast will be available at investors.eastman.com at approximately 5:00 p.m. ET on August 2, 2021. To listen via telephone, the dial-in number is 323-994-2093, passcode number 7246635. A web replay, a replay in downloadable MP3 format, and the accompanying slides and prepared remarks will be available at investors.eastman.com, Events & Presentations. A telephone replay will be available continuously from 12:00 p.m. ET, August 3, 2021 to 12:00 p.m. ET, August 13, 2021 at 888-203-1112 or 719-457-0820, passcode 7246635.
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 2020 revenues of approximately $8.5 billion and is headquartered in Kingsport, Tennessee, USA.
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