“We delivered solid results across our portfolio in the second quarter despite a number of challenges,” said Mark Costa, chairman and CEO. “We continue to focus on growth through Eastman-specific actions, including serving growing markets with capacity additions, improving our mix with higher-value products, and disciplined capital allocation. As a result, Eastman remains well positioned for a fifth consecutive year of strong earnings growth.”
Sales revenue was $2.5 billion, a slight increase compared with second quarter 2013. Operating earnings for second quarter 2014 were $436 million compared with $428 million for second quarter 2013. Second-quarter 2014 operating earnings were $441 million compared with $454 million for second quarter 2013, with the decline primarily due to lower Specialty Fluids & Intermediates segment earnings.
The previously announced unplanned shutdown at the Kingsport, Tenn., facility negatively impacted second-quarter 2014 operating earnings by approximately $10 million.
Segment results 2Q 2014 versus 2Q 2013
• Additives & Functional Products – Sales revenue increased primarily due to higher sales volume for coatings product lines attributed to strengthened demand, particularly in key end markets. Excluding non-core or non-recurring items, operating earnings declined slightly primarily due to higher raw material and energy costs, particularly for propane, partially offset by higher sales volume.
• Adhesives & Plasticizers – Sales revenue increased primarily due to higher sales volume more than offsetting lower selling prices. Higher sales volume for adhesives resins was mostly attributed to stronger end-market demand and customer inventory destocking that negatively impacted second quarter 2013. Higher sales volume for plasticizers was primarily attributed to the timing of substitution of phthalate plasticizers with Eastman non-phthalate plasticizers. Lower selling prices were primarily due to continued competitive pressure attributed to increased adhesives resins supply and weakened plasticizers demand in Asia Pacific and Europe.
• Advanced Materials – Sales revenue increased slightly as higher sales volume for premium products such as interlayers with acoustic properties and Eastman Tritan copolyester was mostly offset by lower sales volume for core products such as Flexvue coated films. Excluding non-core or non-recurring items in the second quarter 2013, operating earnings for second quarter 2014 were relatively unchanged compared to second quarter 2013.
• Fibers – Sales revenue increased due to higher selling prices and sales of acetate flake to Eastman’s China acetate tow joint venture more than offsetting lower acetate tow sales volume. The lower acetate tow sales volume was primarily due to additional industry capacity including the acetate tow joint venture. Operating earnings increased as higher selling prices, sales of acetate flake to the China joint venture, and lower raw material and energy costs more than offset lower acetate tow sales volume and higher operating costs. The higher operating costs were the result of lower capacity utilization that resulted in higher unit costs and costs related to the unplanned shutdown at the Kingsport site.
• Specialty Fluids & Intermediates – Sales revenue declined partly due to a decrease in sales volume resulting from the first-quarter weather-related outage at the Longview, Texas site and the second-quarter unplanned shutdown at the Kingsport site. Sales revenue was also negatively impacted by lower sales volume for intermediates product lines resulting from increased use of intermediates in the manufacture of higher-value downstream derivatives in other segments. Selling prices and sales volume for acetyl-based product lines increased compared to second quarter 2013.
Eastman generated $419 million in cash from operating activities during second quarter 2014 primarily due to strong net earnings. During the quarter, the company completed the acquisition of the aviation turbine oil business from BP plc, which is now a part of the Specialty Fluids & Intermediates segment, and repurchased shares for a total of $100 million. In addition, the company issued $500 million of 30-year public debt at an interest rate of 4.65%, with proceeds to be used for general corporate purposes.
Commenting on the outlook for full year 2014, Costa said, “We delivered solid earnings in the first half of the year despite a number of headwinds. Looking forward, we remain confident in our ability to generate strong year over year earnings growth. As a result, we continue to expect 2014 earnings per share to be between $6.70 and $7.00.”