Eastman Chemical Company (NYSE:EMN) announced its third quarter 2022 financial results.
The company delivered third quarter results in line with its mid-September update:
- Reached a definitive agreement with PepsiCo to baseload our planned third molecular recycling facility.
- Third quarter revenue increased 13 percent excluding the impacts of the divested rubber additives and adhesives resins product lines and foreign currency exchange rates.
- Implemented double-digit price increases across all operating segments to offset significant levels of continued inflation.
- Taking decisive actions to reduce costs by approximately $150 million in 2023.
|(In millions, except per share amounts; unaudited)||3Q22||3Q21|
|Earnings before interest and taxes ("EBIT")||324||370|
|Earnings per diluted share||2.46||2.57|
|Adjusted earnings per diluted share*
|Net cash provided by operating activities||256||547|
*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 team has done an excellent job managing through a challenging environment, including driving mix improvement with innovative products and demonstrating commercial excellence in our pricing,” said Mark Costa, Board Chair and CEO. “We remained focused on implementing significant price increases to offset higher raw material, energy, distribution, and other costs, which were at a higher level in the third quarter than at any other time during this inflationary period. Our focus for the remainder of the year is on generating strong operating cash flow and driving progress on milestones for our key growth initiatives. We are excited to have reached a definitive agreement with PepsiCo for our third planned molecular recycling facility, demonstrating our leadership position to create significant value in the circular economy.”
Corporate Results 3Q 2022 versus 3Q 2021
Sales revenue was unchanged as 14 percent higher selling prices were offset by a 10 percent unfavorable impact from divested businesses and a 3 percent unfavorable impact from foreign currency exchange rates. Sales volume/mix was down 1 percent.
Selling prices increased approximately $380 million in response to significantly higher raw material, energy, and distribution prices. Product mix improved due to the strength of our innovation-driven growth model, driven by transportation and medical end markets, which was offset by lower sales volume attributed to slowing demand across several key end markets, including building and construction and industrial. Sales volume was also impacted by a power outage at our Kingsport, Tennessee, site in late July and logistical constraints.
Adjusted EBIT decreased due to the impact of divested product lines, higher manufacturing costs due to planned and unplanned manufacturing maintenance, unfavorable foreign currency exchange rates, and continued investment in growth, partially offset by lower selling, general and administrative (SG&A) expenses. Spreads were approximately flat as higher selling prices offset higher raw material, energy, and distribution costs, with energy costs accelerating through the quarter.
Segment Results 3Q 2022 versus 3Q 2021
Advanced Materials – Sales revenue increased 15 percent due to 16 percent higher selling prices and 3 percent higher sales volume/mix, partially offset by a 4 percent unfavorable impact from foreign currency exchange rates.
Higher selling prices across the segment were led by specialty plastics and advanced interlayers due to higher raw material, energy, and distribution prices. Improved product mix was led by improvement in the global automotive market and a modest improvement in other markets. Sales volume growth was limited by the unplanned shutdown and logistical constraints.
Adjusted EBIT increased slightly as improved product mix was mostly offset by an unfavorable impact from foreign currency exchange rates and lower sales volume and higher manufacturing costs resulting from the unplanned shutdown. Spreads were slightly favorable as higher selling prices more than offset higher raw material, energy, and distribution costs.
Additives & Functional Products – Sales revenue increased 12 percent due to 16 percent higher selling prices and 1 percent higher sales volume/mix, partially offset by a 5 percent unfavorable impact from foreign currency exchange rates.
Higher selling prices, led by care additives, were due to higher raw material, energy, and distribution prices. Cost pass-through contracts contributed approximately half of the selling price increase in the segment. Higher sales volume/mix was driven by favorable mix in aviation fluids end markets, partially offset by weakening demand in the building and construction and industrial end markets.
Adjusted EBIT decreased slightly due to unfavorable impact from foreign currency exchange rates.
Chemical Intermediates – Sales revenue increased 3 percent due to 14 percent higher selling prices attributed to higher raw material, energy, and distribution prices, partially offset by 9 percent lower sales volume/mix. The lower volume/mix was due to slowing end-market demand, customer destocking, and both planned and unplanned manufacturing maintenance.
Adjusted EBIT decreased due to lower sales volume/mix, the normalization of spreads, and higher manufacturing costs, partially offset by lower SG&A expenses.
Fibers – Sales revenue increased 13 percent as 16 percent higher selling prices due to higher raw material, energy, and distribution prices were partially offset by 2 percent lower sales volume/mix.
EBIT decreased due to higher manufacturing costs and lower sales volume/mix. Higher selling prices were offset by higher raw material, energy, and distribution costs.
In first nine months 2022, cash from operating activities was $518 million, compared to $1,189 million in first nine months 2021. The decline was primarily due to lower adjusted EBITDA, higher cash tax payments, higher variable compensation payouts, and an increased use of cash in working capital driven by continued inflationary pressures. In first nine months 2022, the company returned $1,192 million to stockholders through share repurchases and dividends. See Table 5. The company expects share repurchases for the full year to be approximately $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: Through nine months of 2022, we have demonstrated the resilience of our portfolio as we leveraged our innovation-driven growth model to improve product mix in key markets. The mix improvement mostly offset weakening demand and destocking, primarily in building and construction and industrial end markets, particularly in Europe and China. We’ve also implemented significant price increases to offset historic inflation in raw material, energy, distribution, and other costs. Looking forward to the fourth quarter, challenges to the global economy have increased, including softening end-market demand, accelerated inventory destocking, and the strong U.S. dollar. In addition, we expect continued high energy, raw material, and distribution costs will limit spread improvement in our specialty businesses. In this environment, we remain focused on outperforming our underlying markets as we drive continued mix improvement. Putting this all together, we expect fourth-quarter and full-year 2022 adjusted EPS to be between $1.10 and $1.40 and $8.05 and $8.35, respectively, and operating cash flow to be between $1 billion and $1.2 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, share repurchases, 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 third 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 October 28, 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 October 27, 2022. To listen via telephone, the dial-in number is +1 (844) 200-6205, passcode number 840620. 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 approximately 1:00 p.m. ET, October 28, 2022, to 11:59 p.m. ET, November 7, 2022, at +1 (866) 813-9403 passcode 703929.