Eastman Chemical Company (NYSE:EMN) announced its third-quarter 2021 financial results.
|(In millions, except per share amounts)||3Q21||2Q21||3Q20|
|Earnings (loss) before interest and taxes ("EBIT")||370
|Earnings (loss) per diluted share||2.57||(1.07)||1.18|
|Adjusted earnings per diluted share*||2.46||2.46||1.57|
|Net cash provided by operating activities||547||426||442|
|Free cash flow*||430||319||360|
*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 third-quarter sales revenue was a quarterly record, reflecting the impact of our innovation and market development initiatives and continued solid underlying demand across most end markets," said Mark Costa, Board Chair and CEO. "In addition, our earnings remained resilient despite logistics constraints and the acceleration of higher variable costs through the quarter. The combination of continued price increases and our growth, cost savings, and execution initiatives is enabling us to offset these rising input costs. We also remain focused on our cash flow, and although inflation is impacting working capital, we expect full-year free cash flow to approach $1.1 billion."
Corporate Results 3Q 2021 versus 3Q 2020 and 2Q 2021
Compared to third quarter 2020, sales revenue increased 28 percent due to 19 percent higher selling prices and 9 percent higher volume/mix.
The increased selling prices, led by Chemical Intermediates and Additives & Functional Products, were due to higher raw material, energy, and distribution prices, continued strong end-market demand, and tight market conditions. Higher sales volume/mix was due to continued strong recovery in demand across key end markets and our innovative products enabling above-market growth, especially in building & construction, transportation, and consumer durables markets. Increasing logistics constraints limited our ability to serve strong demand.
EBIT increased due to higher sales volume and more favorable product mix as a result of increased sales of specialty products, particularly in Advanced Materials. Spreads were flat due to increased Chemical Intermediates prices that outpaced higher raw material, energy, and distribution costs, offset by compression in specialty businesses with increased selling prices lagging higher raw material, energy, and distribution costs.
Compared to second quarter 2021, sales revenue increased 3 percent due to 4 percent higher selling prices, offset by 1 percent lower volume/mix. Selling prices increased due to higher raw material and energy prices and continued strong key end-market demand, including building & construction. Through the quarter, automotive OEM component shortages increasingly reduced auto production, particularly impacting Advanced Materials.
EBIT decreased slightly as higher raw material and energy costs outpaced higher selling prices and lower structural costs. Distribution costs remained elevated. Less favorable product mix was primarily due to decreased sales of certain specialty products, particularly in Additives & Functional Products.
Segment Results 3Q 2021 versus 3Q 2020 and 2Q 2021
Advanced Materials – Compared to third quarter 2020, sales revenue increased 15 percent due to 10 percent higher volume/mix, 4 percent higher selling prices, and a 1 percent favorable foreign currency exchange impact.
Higher volume/mix across the segment was due to strong demand in key end markets, including medical, consumer durables, and electronics. Higher selling prices were due to higher raw material, energy, and distribution prices, particularly for specialty plastics.
EBIT decreased as more favorable product mix due to increased sales of specialty plastics and performance films products was more than offset by lower spreads and continued investment in growth.
Compared to second quarter 2021, sales revenue was unchanged as a 1 percent increase in selling prices was offset by a 1 percent decrease in volume/mix.
Demand remained strong across key end markets, including consumer durables and building & construction. Late in the quarter, automotive OEM component shortages began to negatively impact demand for performance films and advanced interlayers products used in higher-end, premium vehicle production.
EBIT decreased due to higher raw material and energy costs and lower sales volumes for advanced interlayers and performance films products used in automotive applications. Distribution costs remained elevated.
Additives & Functional Products – Compared to third quarter 2020, sales revenue increased 34 percent due to 18 percent higher selling prices and 16 percent higher volume/mix.
Higher selling prices, led by coatings and care additives, were due to higher raw material, energy, and distribution prices. Higher volume/mix, particularly of coatings and care additives was due to continued strong end-market demand.
EBIT increased due to higher sales volume and more favorable product mix, partially offset by lower spreads due to higher raw material, energy, and distribution costs outpacing higher selling prices.
Compared to second quarter 2021, sales revenue increased 8 percent due to 7 percent higher selling prices and 2 percent higher volume/mix.
Higher selling prices, particularly for coatings and care additives, were due to higher raw material and energy prices, which continued to rise throughout the quarter. Higher sales volume was led by care additives, which benefitted from increased capacity after a manufacturing maintenance shutdown in second quarter 2021. Less favorable product mix was primarily due to decreased sales of high-value automotive coatings additives.
Adjusted EBIT increased due to lower planned manufacturing maintenance costs and increased spreads, partially offset by less favorable product mix. Distribution costs remained elevated.
Chemical Intermediates – Compared to third quarter 2020, sales revenue increased 44 percent due to 46 percent higher selling prices offset by 2 percent lower volume/mix.
Higher selling prices were due to higher raw material, energy, and distribution prices, continued strong demand, and tight commodity markets.
EBIT increased primarily due to increased spreads.
Compared to second quarter 2021, sales revenue decreased 1 percent due to 5 percent lower volume/mix partially offset by 4 percent higher selling prices.
Volume decreased primarily due to lower functional amines sales resulting from seasonality in the agriculture end market. Selling prices increased as raw material and energy prices continued to rise throughout the quarter.
EBIT decreased due to lower volume and spreads, partially offset by lower planned manufacturing maintenance shutdown costs.
Fibers – Compared to third quarter 2020, sales revenue increased 8 percent due to 7 percent higher volume/mix and 1 percent higher selling prices. Higher textiles sales volume was due to our market development initiatives and the continued recovery of the textiles end market, which was negatively impacted by COVID-19.
EBIT decreased primarily due to higher raw material, energy, and distribution costs.
Compared to second quarter 2021, sales revenue was unchanged as 2 percent higher selling prices were offset by 2 percent lower volume/mix.
EBIT decreased primarily due to higher raw material, energy, and distribution costs.
In first nine months 2021, cash from operating activities was $1.19 billion. Free cash flow (cash from operating activities less net capital expenditures) was $874 million. See Tables 5A and 5B. In first nine months 2021, the company returned $572 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.
Commenting on the outlook for full-year 2021, Costa said: "Through nine months of 2021, we have delivered compelling revenue and earnings growth reflecting the strength of our innovation-driven growth model. Our volume is growing faster than our end markets, particularly for building & construction, consumer durables, and transportation, and we continue to improve our product mix as we grow our higher-value specialty product lines. We also remain disciplined on costs as we implement our operations transformation program. As we enter the fourth quarter, we continue to see logistics challenges, supply chain issues for customers, and an acceleration of higher raw material and energy costs. We are implementing price increases across our specialty product lines to offset these higher costs and expect to be caught up early in 2022. Putting this all together, we now expect 2021 adjusted EPS to be between $8.80 and $9.00, and we expect free cash flow to approach $1.1 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, and asset impairments and restructuring charges) 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; logistics challenges, supply chain issues for customers, and raw material and energy costs; competitive position and acceptance of specialty products in key markets; mix of products sold; cost reductions; and revenue, earnings, cash flow, and cash and cash equivalents 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 second quarter 2021 available, and the Form 10-Q to be filed for third 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 October 29, at 8:00 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 October 28, 2021. To listen via telephone, the dial-in number is 323-994-2093, passcode number 4175522. 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 11:00 a.m. ET, October 29, 2021 to 11:00 a.m. ET, November 8, 2021 at 888-203-1112 or 719-457-0820, passcode 4175522.
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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