Eastman Chemical Co. (EMN) has announced recently that it expects profits in the first quarter to be down 25 cents per share. Eastman had previously forecast first-quarter earnings to be slightly above fourth-quarter earnings of $1.14 per share. The Zacks Consensus Estimate is pegged at $1.15.
The Kingsport, TN-based company attributed the decline in earnings to power outages at a Texas facility. Eastman had announced a power outage at its Longview, Texas, plant on February 20 this year. The company stated that it expects most of the impact of the outage to be offset by higher-than-expected sales and operating margins.
Eastman Chemical Company manufactures and sells chemicals, plastics and fibers with 12 manufacturing sites in the U.S., Europe and Asia-Pacific, supplying products throughout the world. Eastman is the global leader in acetate yarn and the only producer of acetate flake as well as acetate yarn in the U.S. This provides the company an edge over its competitors such as Industrias del Acetato de Celulosa S.A., SK, Mitsubishi Rayon, UAB Korelita and Novaceta SpA.
Acetate yarn is used in textile products such as suit linings, women’s apparel, medical tape and other specialty fabrics. Although the demand for acetate yarn has been declining because of cheaper substitutes such as polyester and rayon yarns, we expect projected capacity reductions in the acetate filament yarn industry to improve demand for Eastman’s product.
Weakening demand continues to impact Eastman’s operations. The weakness in demand led to lower sales volume and continued low capacity utilization, resulting in higher unit costs. However, the company is benefiting from business restructuring and cost-cutting measures.
As part of the restructuring, the company sold unprofitable units and closed businesses that could not be sold. The company closed its PET polymer operations in Cosoleacaque, Mexico and Zarate, Argentina. It has also exited the PET business in the European region by selling the PET manufacturing sites in Spain, the Netherlands and the U.K.
Eastman’s three stream chemical portfolios, integrated and diverse downstream businesses are driving earnings. The company’s strong balance sheet stands out. While the Fibers business continues to outperform, strong specialties margins look increasingly credible.
We reaffirm our Outperform recommendation on Eastman Chemical.
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