Eastman Chemical Company (EMN) reported first-quarter earnings of $3.04 per share, compared with $1.37 per share, a year earlier and beat the Zacks Consensus estimate of $1.97 per share.
Earnings from continuing operations were $2.52 per diluted share in the first quarter versus $1.43 per share in first quarter 2010.
With sales improving across all product lines, revenues climbed 28% year over year to $1.8 billion, driven by higher sales volume and increased selling prices and outpacing the Zacks Consensus estimate of $1.5 billion.
The higher sales volume was attributed primarily to strong end-use demand in packaging, transportation, and other markets and the positive impact of growth initiatives. The increase in selling prices was in response to higher raw material and energy costs.
Costs and Income
Operating earnings in the first quarter 2011 increased by $95 million to $284 million driven by higher selling prices and higher sales volume and offset by higher raw material and energy costs.
First-quarter 2010 operating earnings included $12 million in sales revenue from an acetyl license and were negatively impacted by approximately $20 million by an outage at the company’s Longview, Texas, manufacturing facility.
Segment Details
Performance Chemicals and Intermediates: Eastman’s core business segment, contributed largely to total revenue and margins. Sales soared 44% to $694 million on higher volumes and prices.
Sales volumes rose in the quarter due to the restart of a previously idled cracking unit at the company’s Texas facility and growth in plasticizer product lines, which include the acquired Genovique Specialties plasticizer product lines.
Selling prices increased due to higher raw material and energy costs and also due to strong demand in the U.S. and tight industry supply, particularly for olefin-derivative product lines. Operating earnings were $88 million compared with $35 million in the year-earlier quarter.
The year-over-year growth was primarily driven by higher selling prices, higher sales volumes and the increased benefits from cracking propane to produce low-cost propylene, more than offsetting increased raw material and energy costs.
Coatings, Adhesives, Specialty Polymers and Inks: The segment’s revenues were $467 million, up 25% year on year driven by growth in volumes and a rise in prices. Operating earnings were $98 million versus $65 million in the prior-year quarter. The increase was due to higher selling prices, higher sales volume and increased benefits from cracking propane to produce low-cost propylene, which more than offset higher raw material and energy costs.
Fibers: Sales from the segment grew 8% to $290 million on an increase in volumes mainly due to higher utilization of the recently completed Korean acetate tow manufacturing facility. First-quarter 2011 operating earnings, were $81 million compared with $78 million in the prior year quarter. The increase was primarily due to higher sales volume partially offset by higher raw material and energy costs.
Specialty Plastics: Revenues jumped 24% to $307 million on increased selling price and higher sales volume.
Operating earnings in first quarter 2011, rose 57.9% to $30 million due to higher sales volume and increased capacity utilization, particularly for the new Eastman Tritan copolyester resin manufacturing facility, which led to lower unit costs and increased selling prices, partially offset by higher raw material and energy costs.
Regional Sales
Regionally, first quarter revenues grew 32.9% in the United States and Canada to $918 million and 18% to $397 million in the Asia Pacific. Europe, Middle East and Africa revenues increased 28.6% to $355 million and Latin American revenues increased 27.5% to $88 million.
Liquidity
Cash and cash equivalents stood at $640 million at the end of the first quarter of 2011 versus $483 million at the end of the comparable quarter of 2010. First-quarter 2011 cash flows also included the receipt of approximately $615 million from the sale of the PET business of the Performance Polymers segment which is reflected in cash flows from investing activities.
During first quarter 2011, share repurchases totaled $74 million.
Discontinued Operations
The company completed the sale of the polyethylene terephthalate (PET) business, related assets at the Columbia, South Carolina site, and technology of its Performance Polymers segment on January 31, 2011. The divested assets and technology of the PET business were all part of the Performance Polymers segment.
Operating results from the Performance Polymers segment are presented as discontinued operations and are therefore not included in results from continuing operations under generally accepted accounting principles.
Outlook
Based on the strong first quarter results, the company expects second quarter 2011 earnings per share to be slightly higher than first quarter 2011 and full year 2011 earnings per share to be slightly higher than $9. The results of the first quarter were driven by strong sales volumes and higher prices and Eastman expects the trend to continue into the second quarter as well.
Zacks Recommendation
Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses, is driving earnings. Eastman benefits from business restructuring and cost-cutting measures. The company has sold unprofitable units and closed down poorly performing ones.
The company, however, faces volatility in raw material and energy costs, higher pension expenses and other growth-related costs.
Eastman battles with large multinational companies such as Celanese Corp. (CE) and The DowChemical Co. (DOW) across its major business segments.
Currently, Eastman has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long-term (6 months and higher) Outperform recommendation.
CELANESE CP-A (CE): Free Stock Analysis Report
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