Eastman Chemical Company (NYSE:EMN) announced its second-quarter 2022 financial results.
The company reaffirms guidance of $9.50-$10.00 adjusted EPS for 2022, building on strong underlying performance in the first half:
- Second-quarter revenue increased 15 percent excluding the impact of the divested rubber additives and adhesives resins product lines.
- Adjusted EPS growth of 15 percent year over year due to:
- Innovation-driven growth model delivering strong growth across diverse portfolio of specialty products
- Strong price increases in specialty businesses to recover spread compression from 2021 and keep pace with higher raw material, energy, and distribution costs
- Continued strong performance in Chemical Intermediates.
- Solid adjusted EPS growth expected in the third quarter year over year driven by the specialty businesses.
|(In millions, except per share amounts; unaudited)||2Q22||2Q21|
|Earnings (loss) before interest and taxes ("EBIT")
|Earnings (loss) per diluted share||2.03||(1.07)|
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.
"Our record second-quarter revenue and adjusted EPS reflect strong performance across the company despite a challenging and dynamic global economic environment," said Mark Costa, Board Chair and CEO. "We are doing an outstanding job of implementing price increases to recover spread compression from significantly elevated costs of raw material, energy, distribution, and other inflationary pressures. We also continue to benefit from our innovation-driven growth model, which is driving growth above our underlying end markets in our specialty product lines. Going forward, we remain focused on delivering strong financial results while also making great progress on our circular initiatives, which we expect will be a meaningful accelerator to our growth in the coming years."
Segment Results 2Q 2022 versus 2Q 2021
Advanced Materials – Sales revenue increased 10 percent due to 13 percent higher selling prices, partially offset by an unfavorable foreign currency exchange impact.
Higher selling prices across the segment were led by specialty plastics, and to a lesser extent, advanced interlayers. Both product lines faced significantly higher raw material, energy, and distribution prices, including for paraxylene and poly vinyl alcohol. Sales volume/mix was relatively unchanged as strong underlying demand across key end markets including consumer durables and medical was limited by supply chain constraints and worsening conditions in the automotive end market for advanced interlayers products.
Adjusted EBIT increased slightly as strong pricing across the segment recovered spreads, partially offset by continued investment in growth.
Additives & Functional Products – Sales revenue increased 27 percent due to 20 percent higher selling prices and 11 percent higher sales volume/mix, partially offset by an unfavorable foreign currency exchange impact.
Higher selling prices, led by care additives and coatings additives, were due to higher raw material, energy, and distribution prices. Cost pass-through contracts contributed approximately 40 percent of the selling price increase in the segment. Higher sales volume/mix was driven by strong underlying demand across resilient, attractive end markets, including animal nutrition, personal care, and semiconductors, and improved product availability in care additives, which had a large, planned manufacturing maintenance shutdown in the prior-year period.
Adjusted EBIT increased due to higher sales volume/mix and lower planned manufacturing maintenance costs. Higher selling prices fully recovered spreads.
Chemical Intermediates – Sales revenue increased 17 percent due to 19 percent higher selling prices across the segment, attributed to higher raw material, energy, and distribution prices as well as continued tight market conditions. Sales volume/mix was flat as strong demand in end markets including food, feed and agriculture and pharma was offset by weakness in transportation and building and construction.
Adjusted EBIT increased due to lower planned manufacturing maintenance costs and higher spreads in functional amines and acetyl product lines, mostly offset by lower spreads in certain olefins product lines.
Fibers – Sales revenue increased 9 percent as 12 percent higher selling prices due to higher raw material, energy, and distribution prices were partially offset by modestly lower sales volume/mix.
EBIT was unchanged as higher selling prices offset higher raw material, energy, and distribution costs, lower sales volumes, and higher manufacturing costs.
In first-half 2022, cash from operating activities was $262 million, compared to $642 million in first-half 2021. The decline was primarily due to an increased use of cash in working capital, driven by continued inflationary pressures, variable compensation payouts, and reduced cash earnings resulting from divested EBITDA. On April 1, 2022, the company received approximately $1 billion of cash proceeds from the sale of its adhesives resins product lines. In first-half 2022, the company returned $948 million to stockholders through share repurchases and dividends. See Table 5. The company continues to expect share repurchases for the full year to be greater than $1 billion. 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: "Our second-quarter results demonstrated the resilience of our portfolio as we delivered record revenue and adjusted EPS despite a challenging and dynamic global business environment. Looking to the second half of the year, we expect to leverage our innovation-driven growth model to deliver above end-market growth in our specialty product lines. We also expect to continue raising prices, particularly in our specialty product lines, in response to persistently high inflation. In addition, we remain committed to investing in growth across the company, including for our circular initiatives. We also expect a number of headwinds, including slowing global economic growth, higher costs for energy and some raw materials, continued supply chain challenges for the global auto market and a stronger U.S. dollar. With these increasing challenges, we are taking actions to drive growth and recover spreads to maintain our expectation for 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 be approximately $1.5 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.
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 suppliers, 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, and the Form 10-Q to be filed for second-quarter 2022, both of which are or will 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 July 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 July 28, 2022. To listen via telephone, the dial-in number is 323-794-2093, passcode number 6532485. 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, July 29, 2022, to 11:00 a.m. ET, August 8, 2022, at 888-203-1112 or 719-457-0820, passcode 6532485.
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.