Business News

Eastman Announces Third-Quarter 2012 Financial Results

Friday 02. November 2012 - Eastman Chemical Company (NYSE:EMN) announced earnings from continuing operations, excluding the items described in Table 4 of the accompanying third-quarter 2012 financial tables, of $1.57 per diluted share for third quarter 2012 versus $1.26 per diluted share for third quarter 2011. Reported earnings from continuing operations were $0.99 per diluted share in third quarter 2012 and $1.22 per diluted share in third quarter 2011.

“Our record performance after the Solutia acquisition reaffirms our confidence that we will continue to deliver year-over-year earnings growth,” said Jim Rogers, chairman and CEO. “Results were solid throughout the company, demonstrating the strength and diversity of our businesses in what remains a challenging global economic environment. Cash generation was also strong in the quarter, and we are on track to generate strong free cash flow for years to come.”
(In millions, except per share amounts) 3Q2012
3Q2011

Sales revenue $2,259 $1,812

Pro forma combined sales revenue* $2,259 $2,330

Earnings per diluted share
from continuing operations $0.99 $1.22

Earnings per diluted share from continuing
operations excluding costs related to the
Solutia acquisition and asset impairments
and restructuring charges**
$1.57

$1.26

Net cash provided by operating activities $353 $212
*See “Solutia Acquisition” paragraph below and Table 2 in the accompanying third-quarter 2012 financial tables..
**For reconciliations to reported company and segment earnings, see Tables 3 and 4 in the accompanying second-quarter 2012 financial tables.
Sales revenue for third quarter 2012 was $2.3 billion, a 25 percent increase compared with third quarter 2011. Third-quarter 2012 included sales revenue from the acquired Solutia businesses. Pro forma combined sales revenue declined 3 percent due to lower selling prices partially offset by higher sales volume. The lower selling prices were primarily due to lower raw material and energy costs.
Operating earnings in third quarter 2012 were $263 million compared to $271 million in third quarter 2011. Excluding costs related to the Solutia acquisition and asset impairments and restructuring charges, third-quarter 2012 operating earnings were $397 million compared to $278 million in third quarter 2011. Third-quarter 2012 included operating earnings from the acquired Solutia businesses. Pro forma combined operating earnings, excluding costs related to the Solutia acquisition and asset impairments and restructuring charges, were $397 million in third quarter 2012 compared with $359 million in third quarter 2011. Pro forma combined operating earnings increased due to lower raw material and energy costs and higher sales volume, partially offset by lower selling prices.
Segment Results 3Q 2012 versus 3Q 2011
Additives & Functional Products – Third-quarter 2012 included sales revenue and operating earnings from the acquired Solutia rubber materials product lines. Pro forma combined sales revenue declined slightly as higher sales volume was offset by lower selling prices. The higher sales volume was primarily in the solvents product lines and attributed to strengthened coatings demand in the U.S. and competitor manufacturing outages. The lower selling prices were in response to lower raw material and energy costs primarily in the solvents product lines. Third-quarter 2012 operating earnings included $19 million of additional costs of acquired Solutia inventories. Excluding these costs, pro forma combined operating earnings in third quarter 2012 increased to $105 million compared with operating earnings of $84 million in third quarter 2011 primarily due to higher sales volume and lower raw material and energy costs, which more than offset lower selling prices.
Adhesives & Plasticizers – Sales revenue was unchanged in third quarter 2012 compared to third quarter 2011 as higher sales volume was offset by lower selling prices. The higher sales volume was attributed to the continued substitution of phthalate plasticizers with non-phthalate plasticizers. Lower selling prices were primarily in response to lower raw material and energy costs. Operating earnings in third quarter 2012 increased to $73 million compared to $61 million in third quarter 2011 primarily due to higher sales volume and lower raw material and energy costs, which more than offset lower selling prices.
Advanced Materials – Third-quarter 2012 included sales revenue and operating earnings from the acquired Solutia advanced interlayers and performance films product lines. Pro forma combined sales revenue was unchanged. Operating earnings in third quarter 2012 included $39 million of additional costs of acquired Solutia inventories. Excluding these costs, pro forma combined operating earnings decreased to $57 million in third quarter 2012 from $63 million in third quarter 2011 due to lower sales volume in Europe for advanced interlayers product lines and lower capacity utilization.
Fibers – Sales revenue increased primarily due to higher selling prices in response to higher raw material and energy costs, particularly for wood pulp. Operating earnings were $98 million in both periods as higher selling prices were mostly offset by higher raw material and energy costs.
Specialty Fluids & Intermediates – Third-quarter 2012 included sales revenue and operating earnings from the acquired Solutia specialty fluids product lines. Pro forma combined sales revenue declined as lower selling prices were partially offset by higher sales volume. The lower selling prices, primarily for olefin derivative products, were in response to lower raw material and energy costs, particularly for propane and ethane. Operating earnings in third quarter 2012 included $17 million of additional costs of acquired Solutia inventories. Excluding these costs and $7 million in restructuring charges, primarily for severance associated with the acquisition and integration of Sterling, pro forma combined operating earnings in third quarter 2012 increased to $96 million compared to $76 million in third quarter 2011. The increase was primarily due to lower raw material and energy costs and the benefit of producing versus purchasing olefins, partially offset by lower selling prices.
Cash Flow
Eastman generated $353 million in cash from operating activities during third-quarter 2012, primarily due to strong net earnings.
Outlook
Commenting on the outlook for full year 2012, Rogers said: “The global economic environment remains challenging as we enter the seasonally slower fourth-quarter. We also anticipate higher raw material and energy costs toward the end of the year. However, given our current outlook of a stable economy we expect our business will continue to demonstrate strength as it has throughout the year. We are therefore raising our full year 2012 expectation slightly to earnings per share of between $5.30 and $5.40.” Solutia and other acquisition costs and charges, including financing, transaction, integration, and inventory costs, asset impairments and restructuring charges, net, and mark-to-market pension and OPEB adjustments are excluded from the earnings per share projection.
Solutia Acquisition
On July 2, 2012, the company completed the acquisition of Solutia Inc. Beginning third-quarter 2012, the company changed its reportable segments due to changes in the company’s organization resulting from the Solutia acquisition. This news release includes a comparison of third-quarter 2012 and third-quarter 2011 results on a pro forma combined basis. The pro forma combined information assumes the acquisition of Solutia on January 1, 2011. For selected pro forma combined segment information, see the company’s Current Report on Form 8-K furnished with the Securities and Exchange Commission on October 15, 2012.
As required by purchase accounting, the acquired Solutia inventories were marked to fair value. These inventories were sold in third quarter 2012 resulting in a one-time $75 million increase in cost of sales, net of the LIFO impact of these inventories. Third-quarter 2012 results of operations also included $22 million of Solutia acquisition and integration costs and $28 million of severance charges associated with the acquisition and integration of Solutia.