Eastman Chemical Company (NYSE:EMN) announced its first-quarter 2022 financial results.
The company reaffirms guidance of $9.50-$10 adjusted EPS for 2022, building on strong underlying performance in the first quarter:
- First-quarter revenue increased 13 percent year-over-year and 19 percent excluding the impact of the divested rubber additives and adhesive resins product lines.
- Made significant progress raising selling prices by 17 percent on a combined basis in Additives & Functional Products and Advanced Materials to recover spreads and offset broad-based inflation.
- Innovation-driven growth model continues to deliver volume growth and mix improvement in the specialties despite a challenging operating environment.
- Strong 8-12 percent adjusted EPS growth expected in the second quarter year-over-year driven by the specialties.
|(In millions, except per share amounts)
|Earnings before interest and taxes ("EBIT")
|Earnings per diluted share
Adjusted earnings per diluted share*
|Net cash provided by operating activities
*For non-core and unusual items excluded from adjusted diluted EPS and for adjusted provision for income taxes, 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, 5, and 6.
"First-quarter results reflected outstanding underlying performance, including strong pricing to offset significant inflation of raw material, energy, and distribution costs, the benefit of our innovation-driven growth model, and continued solid end-market demand," said Mark Costa, Board Chair and CEO. "This strong performance included the impact of the steam line incident at our Kingsport, Tennessee, manufacturing facility, which occurred in the first quarter and primarily impacted specialty copolyesters. We remain thankful that there were no serious injuries related to this incident and are appreciative to the Eastman team for the quick response to the situation. Going forward, we remain focused on delivering strong revenue, earnings, and cash flow for the remainder of this year and the coming years. We are also continuing to make great progress on our circular initiatives, which are expected to be a meaningful contributor to our growth."
Segment Results 1Q 2022 versus 1Q 2021
Advanced Materials – Sales revenue increased 3 percent primarily driven by 10 percent higher selling prices, partially offset by a 6 percent decrease in sales volume/mix.
While underlying demand remained strong across key end markets, including durables and medical, sales volume decreased in specialty plastics due to limited capacity resulting from the Kingsport steam line incident. (See "Kingsport steam line incident" below for additional information.) Higher selling prices were due to strong demand and higher raw material, energy, and distribution prices.
EBIT decreased primarily due to the estimated $100 million financial impact of the Kingsport steam line incident.
Additives & Functional Products – Sales revenue increased 32 percent driven by 25 percent higher selling prices and 10 percent higher sales volume/mix.
Double-digit price increases across the segment were led by care additives. The higher selling prices were due to strong end-market demand and higher raw material, energy, and distribution prices. Cost pass-through contracts represented approximately 40 percent of the selling price increase. Higher sales volume was due to strong underlying demand in key end markets, including building and construction, personal care, and animal nutrition.
EBIT increased due to higher sales volume and higher selling prices, which more than offset higher raw material, energy, and distribution costs.
Chemical Intermediates – Sales revenue increased 32 percent driven primarily by 33 percent higher selling prices.
Higher selling prices across the segment were due to higher raw material, energy, and distribution prices as well as continued tight market conditions. Sales volume/mix was approximately flat as strong demand growth in the agriculture market for functional amines was offset by acetyl products impacted by the Kingsport steam line incident.
EBIT increased due to higher spreads across the segment.
Fibers – Sales revenue decreased 2 percent due to a 9 percent decrease in sales volume/mix, partially offset by 7 percent higher selling prices.
Lower sales volume/mix for acetate tow was due to limited capacity resulting from the Kingsport steam line incident. Higher selling prices across the segment were due to higher raw material, energy, and distribution prices.
EBIT decreased primarily due to approximately $15 million of lower sales volume and higher operating costs resulting from the Kingsport steam line incident and the Russia/Ukraine conflict.
In first quarter 2022, cash from operating activities was $17 million, compared to $216 million in first quarter 2021. The decrease was primarily due to lower net earnings and a higher variable compensation payout related to 2021 results. In first quarter 2022, the company returned $98 million to stockholders through dividends. See Table 5. On April 1, 2022, the company received $1 billion of cash proceeds from the sale of its adhesives resins product lines. Priorities for uses of available cash for the remainder of 2022 include organic growth investments, payment of the quarterly dividend, bolt-on acquisitions, and share repurchases.
Commenting on the outlook for full-year 2022, Costa said: "We delivered outstanding underlying performance in the first quarter despite a challenging global economic environment and the Kingsport steam line incident. This performance reflects strong pricing to recover spread and offset significant inflation, the benefit of our innovation-driven growth model, and continued solid end-market demand. First-quarter adjusted results also included an estimated $125 million financial impact of the Kingsport steam line incident. Moving forward, we expect the strong underlying performance from the first quarter to continue for the remainder of the year. We remain on track with our spread tailwind for the year with continued pricing excellence as we recover spread from the back half of 2021 and offset current inflation in 2022. We also expect our specialty product lines to continue to grow faster than our end markets and drive additional mix improvement. In addition, we expect to recover a significant portion of the financial impact related to the Kingsport steam line incident through higher volume. These strong tailwinds are expected to more than offset a number of headwinds, including persistent logistics constraints, a slowly recovering global auto market, and limited impact so far from both the spread of COVID-19 in China and a slowing European economy. Taking all of this together, we continue to expect 2022 adjusted EPS to be between $9.50 and $10.00, which at the midpoint would be 10 percent growth year over year. We also expect operating cash flow to approach $1.6 billion."
The full-year 2022 projected adjusted diluted EPS excludes 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 because we are unable to predict with reasonable certainty the financial impact of such items. These items are uncertain and depend on various factors, and we are unable to reconcile projected adjusted diluted EPS excluding non-core and any unusual or non-recurring items to reported GAAP diluted EPS without unreasonable efforts. For the same reasons, we are unable to address the significance of the available information, which could be material to future results.
Kingsport Steam Line Incident
On January 31, 2022, the company experienced a steam line failure at its Kingsport site. Per Eastman safety processes, all manufacturing operations at the site were safely shut down following the incident. All areas of the manufacturing facility have returned to normal operations. The primary impacted area was specialty copolyesters in the Advanced Materials segment, which was operational as of March 31, 2022.
The company estimates the financial impact of the incident reduced adjusted earnings by approximately $125 million ($0.80 per share), which consists of an estimated $75 million gross profit impact from lower sales revenue and approximately $50 million of accelerated costs. These costs were associated with normal business operations, including labor, benefits, and depreciation. They were accelerated into the first quarter due to extended asset downtime instead of being assigned to inventory and realized throughout the year.
GAAP earnings include incremental costs to repair damaged infrastructure and minimize customer disruption. These incremental costs of $25 million net of initial insurance were excluded from the company's adjusted earnings.
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, adjusted diluted EPS, cash flow, and cash and cash equivalents for full-year 2022. 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 2021 available, and the Form 10-Q to be filed for first quarter 2022 and to be available, on the Eastman web site at www.eastman.com in the Investors, SEC filings section. These statements are based on our current beliefs and expectations and speak only as of the date of this release. We do not undertake any obligation to publicly update any forward-looking statements.
Conference Call and Webcast Information
Eastman will host a conference call with industry analysts on April 29, 2022, 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 April 28, 2022. To listen via telephone, the dial-in number is 323-794-2093, passcode number 9103570. 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, April 29, 2022, to 11:00 a.m. ET, May 9, 2022, at 888-203-1112 or 719-457-0820, passcode 9103570.
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 14,000 people around the world and serves customers in more than 100 countries. The company had 2021 revenue of approximately $10.5 billion and is headquartered in Kingsport, Tennessee, USA.