Eastman Chemical Company (EMN) reported fourth-quarter earnings of 71 cents per share, compared with 70 cents per share, a year earlier and missed the Zacks Consensus estimate of 80 cents per share. The 2010 EPS excluded $26 million of asset impairments and restructuring charges and $115 million of early debt extinguishment costs.
Revenues climbed 18% year over year to $1.7 billion, driven by increased selling prices and higher sales volumes. Operating earnings in the quarter increased to $163 million from $161 million in the fourth quarter of 2010.
For full year 2011, the company reported earnings of $4.56 per share (excluding asset impairments and restructuring charges and gains) compared with $3.48 per share in 2010 (excluding asset impairments, restructuring charges and early debt extinguishment charges).
Segment Details
Coatings, Adhesives, Specialty Polymers and Inks: The segment’s revenues were $425 million in the quarter, up 12% year on year, driven by higher sales volumes and a rise in prices due to higher raw material and energy costs. Operating earnings in the reported quarter were $52 million compared with $53 million in the previous year quarter.
For the full year 2011, sales rose 17% to $1.84 billion led by higher selling prices and increased sales volumes. Increased demand in the U.S. and tight industry supply contributed to the increase in selling prices. Strong end-use demand in the packaging, durable goods, and transportation markets, particularly in the U.S, led to higher sales volumes.
Fibers: Sales in the segment grew 8% to $324 million on favorable shift in product mix, higher selling prices and higher sales volumes. The favorable shift in product mix was mainly due to higher acetate tow sales volume resulting from higher utilization of the recent acetate tow manufacturing facility in Korea. The company raised selling prices in response to higher raw material and energy costs, particularly for wood pulp.
Operating earnings in the segment were $80 million in the fourth quarter compared with $78 million in the prior year quarter. The increase was primarily due to a rise in acetate tow sales volume and higher selling prices partially offset by higher raw material and energy costs.
For the full year 2011, sales increased 12% to $1.28 billion from $1.14 billion a year ago.
Performance Chemicals and Intermediates: Sales soared 33% to $697 million on higher volumes and increased selling prices. The Longview, Texas, olefins cracking unit, which restarted in December 2010, led to the increased volumes of ethylene in the quarter. Higher raw material and energy costs particularly for propane led to higher selling prices.
Operating earnings were $42 million in the reported quarter compared with $51 million in the year-earlier quarter. Higher raw material and energy costs, particularly in Asia Pacific and Europe led to the decline in operating earnings.
For the full year 2011, sales for Performance Chemicals and Intermediates grew 37% to $2.86 billion.
Specialty Plastics: Revenues increased 7% to $277 million on higher selling price partially offset by lower sales volume. Lower sales volume was attributable to weakened demand for copolyester product lines, particularly in packaging, consumer durable end markets. Operating earnings in the quarter were $9 million compared with $24 million in the year ago quarter. Lower sales volume and lower capacity utilization, due to weakened demand for copolyester product lines as well as inventory management during and after planned maintenance shutdowns led to the decrease in operating earnings.
For the full year 2011, sales increased 15% to $1.20 billion.
Regional Sales
Regionally, fourth quarter revenues grew 31% in the United States and Canada to $924 million and 8% to $417 million in the Asia-Pacific. Europe, the Middle East and Africa revenues increased 1% to $304 million and Latin American revenues went up 8% to $78 million.
Liquidity
Cash and cash equivalents stood at $577 million at the end of the fourth quarter of 2011 versus $516 million at the end of the comparable quarter of 2010.
Eastman generated $625 million in cash from operating activities during fiscal 2011. Free cash flow was $142 million in 2011, reflecting solid net earnings and increased capital expenditures primarily for growth initiatives. During the year, share repurchases totaled $316 million.
Outlook
Eastman expects to face certain headwinds in the first half of 2012. The company continues to expect volatility in raw material and energy costs and higher pension expense. The company forecast first-quarter 2012 earnings from continuing operations between $1.05 and $1.15 per share.
The company anticipates that there will be more economic activities in the second half of 2012, particularly in the Asia Pacific and North American regions. It expects earnings per share from continuing operations in 2012 to be higher than that of 2011. The company expects to deliver strong results and looks forward to benefit from the recent capacity additions as well as the Sterling and Scandiflex acquisitions.
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 sold unprofitable units and closed down the poorly performing ones. However, the company 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 Corporation (CE) and The Dow Chemical Company (DOW) and EI DuPont de Nemours and Company (DD) across its major business segments.
Currently, Eastman has a Zacks #1 Rank (Strong Buy) on its shares for the short-term (1 to 3 months) and we maintain a “Neutral” recommendation on the shares for the long-term (more than 6 months)
To read this article on Zacks.com click here.
Zacks Investment Research