08.01.18
Eastman Chemical Company announced reported earnings of $2.39 per diluted share for second quarter 2018 versus $2 per diluted share for second quarter 2017. Adjusted earnings were $2.22 per diluted share for second quarter 2018 versus $1.98 per diluted share for second quarter 2017.
"In the second quarter, we delivered an eight percent increase in revenue and strong earnings growth," Board Chair and CEO Mark Costa said. "A significant contributor to the higher revenue was increased sales volume, with compelling eight percent volume growth in the Additives & Functional Products and Advanced Materials segments driven by our innovation-led strategy. We remain confident that execution of our strategy will result in continued outstanding results going forward."
Segment Results 2Q 2018 versus 2Q 2017
Additives & Functional Products – Sales revenue increased due to higher sales volume across the segment, a favorable shift in foreign currency exchange rates, and higher selling prices. The higher sales volume and higher selling prices for most product lines, particularly animal nutrition and coatings and inks additives, were primarily attributed to improved market conditions and enhanced commercial execution. Reported EBIT included insurance proceeds in excess of costs in the second quarter 2018 resulting from the coal gasification incident. Reported and adjusted EBIT increased primarily due to higher sales volume and a favorable shift in foreign currency exchange rates, partially offset by increased investment in growth.
Advanced Materials – Sales revenue increased primarily due to higher sales volume across the segment, including for premium products such as Tritan copolyester, Saflex head-up displays, and performance films, as well as a favorable shift in foreign currency exchange rates. Reported EBIT included insurance proceeds in excess of costs in the second quarter 2018 resulting from the coal gasification incident. Reported and adjusted EBIT increased primarily due to higher sales volume and improved product mix of premium products as well as a favorable shift in foreign currency exchange rates, partially offset by higher raw material and energy costs and increased investment in growth.
Chemical Intermediates – Sales revenue increased due to higher selling prices across most product lines, particularly for acetyl derivatives attributed to favorable market conditions and for olefin derivatives due to higher raw material and energy prices. Lower sales volume was due to lower merchant ethylene sales resulting from a planned manufacturing shutdown and supplier operational disruptions at the Texas City and Longview, Texas sites, partially offset by higher functional amines sales attributed to improvement in the agriculture and energy markets. Reported EBIT included insurance proceeds in excess of costs in the second quarter 2018 resulting from the coal gasification incident. Excluding this unusual item, adjusted EBIT decreased primarily due to increased costs of approximately $25 million resulting from supplier operational disruptions at the Texas City and Longview, Texas sites and higher planned maintenance costs. The decrease was partially offset by higher selling prices more than offsetting higher raw material and energy costs and the reduced negative impact of hedges of commodity prices on raw material costs.
Fibers – Sales revenue increased due to sales of nonwovens innovation platform products previously reported in "Other," higher sales volume for acetate tow due to customer buying patterns, and continued growth in the textiles innovation platform. The higher sales volume was partially offset by lower acetate tow selling prices attributed to lower industry capacity utilization. Reported EBIT included insurance proceeds in excess of costs in the second quarter 2018 resulting from the coal gasification incident. Excluding this unusual item, adjusted EBIT increased slightly primarily due to higher sales volume and earnings from nonwovens innovation platform products, mostly offset by lower selling prices and increased investment in growth most of which was previously reported in "Other."
Cash Flow
Eastman generated $443 million in cash from operating activities during second quarter 2018, primarily due to strong net earnings partially offset by increased working capital. For the second quarter of 2018, cash insurance proceeds, net of cash used, for the coal gasification repair and restart were approximately $55 million. Share repurchases totaled $150 million in second quarter 2018.
The company continues to expect to generate $1.1 billion of free cash flow (cash from operating activities less net capital expenditures). Priorities for uses of available cash include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives and repurchasing shares.
Outlook
Commenting on the outlook for full-year 2018, Costa said: "During the first half of the year, we delivered a 17 percent year-over-year increase in adjusted earnings per share. This performance was the result of strong volume growth in the specialty segments leveraging our innovation-driven growth model, as well as continued disciplined cost management, use of our robust free cash flow and a lower tax rate. Taking all of this together, we remain confident in our expectations for adjusted 2018 EPS growth to be between 10-14 percent."
(In millions, except per share amounts) 2Q2018 2Q2017
Sales revenue $2,621 $2,419
Earnings before interest and taxes ("EBIT") $491 $420
Adjusted EBIT* $447 $420
Earnings per diluted share $2.39 $2.00
Adjusted earnings per diluted share* $2.22 $1.98
Net cash provided by operating activities $443 $431
Free cash flow* $342 $285
"In the second quarter, we delivered an eight percent increase in revenue and strong earnings growth," Board Chair and CEO Mark Costa said. "A significant contributor to the higher revenue was increased sales volume, with compelling eight percent volume growth in the Additives & Functional Products and Advanced Materials segments driven by our innovation-led strategy. We remain confident that execution of our strategy will result in continued outstanding results going forward."
Segment Results 2Q 2018 versus 2Q 2017
Additives & Functional Products – Sales revenue increased due to higher sales volume across the segment, a favorable shift in foreign currency exchange rates, and higher selling prices. The higher sales volume and higher selling prices for most product lines, particularly animal nutrition and coatings and inks additives, were primarily attributed to improved market conditions and enhanced commercial execution. Reported EBIT included insurance proceeds in excess of costs in the second quarter 2018 resulting from the coal gasification incident. Reported and adjusted EBIT increased primarily due to higher sales volume and a favorable shift in foreign currency exchange rates, partially offset by increased investment in growth.
Advanced Materials – Sales revenue increased primarily due to higher sales volume across the segment, including for premium products such as Tritan copolyester, Saflex head-up displays, and performance films, as well as a favorable shift in foreign currency exchange rates. Reported EBIT included insurance proceeds in excess of costs in the second quarter 2018 resulting from the coal gasification incident. Reported and adjusted EBIT increased primarily due to higher sales volume and improved product mix of premium products as well as a favorable shift in foreign currency exchange rates, partially offset by higher raw material and energy costs and increased investment in growth.
Chemical Intermediates – Sales revenue increased due to higher selling prices across most product lines, particularly for acetyl derivatives attributed to favorable market conditions and for olefin derivatives due to higher raw material and energy prices. Lower sales volume was due to lower merchant ethylene sales resulting from a planned manufacturing shutdown and supplier operational disruptions at the Texas City and Longview, Texas sites, partially offset by higher functional amines sales attributed to improvement in the agriculture and energy markets. Reported EBIT included insurance proceeds in excess of costs in the second quarter 2018 resulting from the coal gasification incident. Excluding this unusual item, adjusted EBIT decreased primarily due to increased costs of approximately $25 million resulting from supplier operational disruptions at the Texas City and Longview, Texas sites and higher planned maintenance costs. The decrease was partially offset by higher selling prices more than offsetting higher raw material and energy costs and the reduced negative impact of hedges of commodity prices on raw material costs.
Fibers – Sales revenue increased due to sales of nonwovens innovation platform products previously reported in "Other," higher sales volume for acetate tow due to customer buying patterns, and continued growth in the textiles innovation platform. The higher sales volume was partially offset by lower acetate tow selling prices attributed to lower industry capacity utilization. Reported EBIT included insurance proceeds in excess of costs in the second quarter 2018 resulting from the coal gasification incident. Excluding this unusual item, adjusted EBIT increased slightly primarily due to higher sales volume and earnings from nonwovens innovation platform products, mostly offset by lower selling prices and increased investment in growth most of which was previously reported in "Other."
Cash Flow
Eastman generated $443 million in cash from operating activities during second quarter 2018, primarily due to strong net earnings partially offset by increased working capital. For the second quarter of 2018, cash insurance proceeds, net of cash used, for the coal gasification repair and restart were approximately $55 million. Share repurchases totaled $150 million in second quarter 2018.
The company continues to expect to generate $1.1 billion of free cash flow (cash from operating activities less net capital expenditures). Priorities for uses of available cash include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives and repurchasing shares.
Outlook
Commenting on the outlook for full-year 2018, Costa said: "During the first half of the year, we delivered a 17 percent year-over-year increase in adjusted earnings per share. This performance was the result of strong volume growth in the specialty segments leveraging our innovation-driven growth model, as well as continued disciplined cost management, use of our robust free cash flow and a lower tax rate. Taking all of this together, we remain confident in our expectations for adjusted 2018 EPS growth to be between 10-14 percent."
(In millions, except per share amounts) 2Q2018 2Q2017
Sales revenue $2,621 $2,419
Earnings before interest and taxes ("EBIT") $491 $420
Adjusted EBIT* $447 $420
Earnings per diluted share $2.39 $2.00
Adjusted earnings per diluted share* $2.22 $1.98
Net cash provided by operating activities $443 $431
Free cash flow* $342 $285
