Eastman Chemical Company (EMN) earned $2.33 per share in the third quarter of 2010, outperforming the Zacks Consensus Estimate of $1.22. Year over year, earnings shot up 69% from $1.38 per share. A healthy top-line growth driven by higher volumes and prices led to the robust earnings.
With sales improving across all product lines, quarterly revenues climbed 29% to $1.7 billion, outshining the Zacks Consensus Estimate of $1.6 billion. Volumes and pricing gains drove revenues in the quarter. Volumes were driven by higher demand in end-markets, particularly packaging, durable goods, and other markets. The increase in selling prices was attributed to higher raw material and energy costs.
Higher sales and lower unit costs (on the back of improved utilization rates) culminated into stronger operating profits. Operating earnings jumped 47% to $280 million.
Segment Results
Coatings, Adhesives, Specialty Polymers and Inks – Higher sales volumes (18%) on the back of improving demand from consumers, especially in Europe and US, coupled with stronger prices (10%) yielded a 20% increase in revenues to $406 million in the quarter. Operating earnings surged 8% to $91 million.
Fibers –Sales revenue shot up 17% to $301 million due to a 6% rise in sales volumes. Volumes were high, primarily in the acetate tow and acetate yarn product lines. Operating earnings increased 14% to $90 million with higher sales.
Performance Chemicals and Intermediates –Sales jumped 42% to $534 million primarily driven by higher sales volume (28%) in plasticizer product lines and a 23% spike in selling prices. The addition of new plasticizer product lines from the acquisition of Genovique Specialties Corporation, and rising demand in markets including industrial chemicals and processing, agriculture and health and wellness, contributed to the revenue growth. Higher revenues and lower costs more than doubled operating earnings to $77 million compared with $31 million in the year-earlier quarter.
Performance Polymers – A 34% rise in revenues to $222 million was attributable to a 27% increase in sales volume on the back of improved operations of the IntegRex™-based PET manufacturing facility and an 8% increase in prices. Operating earnings of $6 million in the third quarter reversed operating losses of $8 million in the year-ago quarter.
Specialty Plastics – Sales revenue spiked 33% to $266 million primarily on higher volumes, which grew 27% with higher demand for specialty packaging and consumer and durable goods. Prices inched up 1% year over year. Stronger sales in the core copolyesters and Eastman Tritan™ copolyester products also added to total revenue. Operating earnings of $31 million in the third quarter of 2010 was a two-fold increase from $13 million in the comparable quarter last year.
Liquidity
Stronger profits led to operating cash flows of $316 million. Eastman expects to generate free cash flow of above $300 million for full year 2010. The company plans to contribute $135 million to the U.S. defined benefit pension plan, of which $100 million is expected to be contributed in the fourth quarter.
Outlook
Eastman expects fourth-quarter 2010 earnings per share to be in the range of $1.40 and $1.50. The company anticipates strong volumes across all regions. As per the company, higher raw material and energy costs, particularly for paraxylene, could negatively affect its operating margins.
Eastman has a history of outperforming the Zacks Consensus Estimate. The company has outpaced the consensus estimate in all of the trialing four quarters, yielding a positive average surprise of 19.4%. This induces optimism on the stocks performance. Currently, Eastman has a short-term (1 to 3 months) Zacks #1 Rank (Strong Buy) and a long-term (6 months and higher) Outperform recommendation.
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