Eastman Chemical Company (NYSE:EMN) announced its second-quarter 2023 financial results.
- Solid sequential improvement in earnings despite a persistent weak demand environment, driven by disciplined pricing, lower variable costs, and cost saving initiatives
- Continue to expect to reduce cost structure by more than $200 million, net of inflation
- Generated strong operating cash flow in the second quarter and remain on track with full-year 2023 cash target with aggressive actions to reduce inventories
|(In millions, except per share amounts; unaudited)
|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 earnings and for adjusted provision for income taxes, segment adjusted EBIT margins, and net debt, reconciliations to reported company and segment earnings and total borrowings for all periods presented in this release, see Tables 3A, 3B, 4A, 4B, and 6.
“Our second-quarter results demonstrated solid improvement compared with first quarter, reflecting continued commercial excellence in pricing and the benefit of lower raw material and energy costs,” said Mark Costa, Board Chair and CEO. “We delivered this performance despite a global economic environment that remained challenging due to weak primary demand particularly in consumer durables and building and construction end markets. Customer inventory destocking also continued in the second quarter across a number of end markets. In this sustained challenging macro environment, we continue to be focused on what we can control including price discipline, cost reduction, and working capital management. We continue to be confident in the resiliency of our portfolio and the sustainability of our strong cash flow going forward. We are also excited about the progress on our circular economy initiatives, including our target to produce material and realize revenue around year end from our Kingsport, Tennessee, methanolysis facility.”
Corporate Results 2Q 2023 versus 2Q 2022
Sales revenue decreased 17 percent primarily due to 15 percent lower sales volume/mix.
Sales volume/mix was lower across most product lines due to the continuation of weak primary demand and continued customer inventory destocking across several end markets, including consumer durables, building and construction, agriculture, and medical. This weakness was partially offset by automotive where we continue to benefit from momentum in our premium products. Higher selling prices in Fibers and Advanced Materials reflect the solid price gains to recover significantly higher raw material, energy, and distribution costs.
EBIT decreased due to lower sales volume/mix, lower capacity utilization including actions to reduce inventory, increased pension expense, and an unfavorable impact from foreign currency. These factors were partially offset by lower variable costs more than offsetting lower selling prices.
Segment Results 2Q 2023 versus 2Q 2022
Advanced Materials – Sales revenue was down 13 percent due to 15 percent lower sales volume/mix, partially offset by 3 percent higher selling prices.
Lower sales volume/mix in specialty plastics was due to continued weak demand and aggressive customer inventory destocking, particularly in the consumer durables, medical, and consumables end markets. The lower sales volume/mix was partially offset by solid demand in the automotive end market resulting in improved product mix for advanced interlayers driven by increased sales of premium products including strong growth in electric vehicles. Higher selling prices, particularly for advanced interlayers, were a result of significant levels of inflation.
EBIT decreased due to lower volume/mix, lower capacity utilization including actions to reduce inventory, and an unfavorable impact from foreign currency. These factors were partially offset by slightly higher selling prices and lower variable costs.
Additives & Functional Products – Sales revenue decreased 19 percent due to 14 percent lower sales volume/mix and 5 percent lower selling prices.
Sales volume/mix was lower across the segment due to weak demand especially in the building and construction end market as well as customer inventory destocking in the agriculture end market partially offset by continuing recovery of aviation fluids. Lower selling prices were primarily due to cost pass through contracts in care additives.
EBIT decreased due to lower sales volume/mix and lower capacity utilization, partially offset by lower variable costs more than offsetting lower selling prices.
Fibers – Sales revenue increased 33 percent primarily due to 32 percent higher selling prices.
Substantially higher selling prices for acetate tow were due to an increase in industry capacity utilization and higher raw material, energy, and distribution prices.
EBIT increased due to recovery of margins as higher selling prices returned EBIT margins to acceptable performance levels.
Chemical Intermediates – Sales revenue decreased 33 percent primarily due to 22 percent lower sales volume/mix and 11 percent lower selling prices.
Sales volume/mix was lower in plasticizers and olefins due to continued weak end-market demand and customer inventory destocking, including for building and construction, consumer durables, and industrial. In addition, the prior year period for acetyl products included strong sales volume/mix related to tight market conditions resulting from competitor outages. Selling prices were lower due to lower raw material prices.
EBIT decreased due to lower sales volume/mix and lower spreads, which were above mid-cycle levels in the year-ago period.
In second quarter 2023, cash provided by operating activities was $410 million compared to $245 million in second quarter 2022. In second quarter 2023, the company returned $144 million to stockholders through dividends and share repurchases. See Table 5. Priorities for uses of available cash for 2023 include organic growth investments, payment of the quarterly dividend, bolt-on acquisitions, share repurchases to offset dilution, and net debt reduction.
Commenting on the outlook for full-year 2023, Costa said: “We delivered solid results in the first half of the year despite the challenging global economic environment. With the continued uncertainty, our focus remains on what we can control. This includes demonstrating strong commercial excellence with pricing discipline enabling margin recovery as we realize lower raw material, energy, and distribution costs. We also continue to expect to reduce our manufacturing, supply chain, and non-manufacturing costs by a total of $200 million for the year, net of inflation. Looking to the second half, we continue to expect auto, aviation, and other markets to modestly improve. However, we have reduced our demand growth outlook and therefore now expect primary demand across many of our end markets to be stable compared with the first half. Given the limited improvement in demand, we expect inventory destocking by our customers to persist, although at somewhat lower levels. Consistent with prioritizing cash flow in this environment, we are taking actions to meaningfully reduce our inventories, which when combined with reduced demand expectations, will result in lower capacity utilization and a substantial earnings headwind in the back half of the year. Taking this together, we expect second half adjusted earnings per share (EPS) to be somewhat below first half and for 2023 EPS to be between $6.50 and $7.00. In addition, we continue to expect to generate $1.4 billion of operating cash flow in 2023.”
The full-year 2023 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 information and other statements by the company may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings, revenues, volumes, pricing, margins, cost reductions, expenses, taxes, liquidity, capital expenditures, cash flow, dividends, share repurchases or other financial items, statements of management’s plans, strategies and objectives for future operations, and statements regarding future economic, industry or market conditions or performance. Such projections and estimates are based upon certain preliminary information, internal estimates, and management assumptions, expectations, and plans. Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by any forward-looking statements. Forward-looking statements speak only as of the date they are made, and the company undertakes no obligation to update or revise any forward-looking statement. Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company’s filings with the Securities and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at www.sec.gov and the company’s website.
Conference Call and Webcast Information
Eastman will host a conference call with industry analysts on July 28, 2023, 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 27, 2023. To listen via telephone, the dial-in number is +1 (833) 470-1428, passcode: 393116. 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, July 28, 2023, to 11:59 p.m. ET, Aug 7, 2023, at +1 (866) 813-9403, passcode 179037.