Business News

Eastman Announces Second-Quarter 2009 Financial Results

Friday 24. July 2009 - Eastman Chemical Company (NYSE:EMN) today announced earnings per diluted share of $0.89 for second quarter 2009 versus $1.48 for second quarter 2008. Excluding asset impairments and restructuring charges, net, in both second quarter 2009 and second quarter 2008, and accelerated depreciation costs in second quarter 2008, earnings per diluted share were $0.86 for second quarter 2009 and $1.53 for second quarter 2008. For reconciliations to reported company and segment earnings, see Tables 3 and 5 in the accompanying second-quarter 2009 financial tables.

“Although economic conditions continue to be challenging, we delivered solid earnings in the second quarter reflecting cost reduction actions we’ve taken and some improvement in demand as customer destocking appears to be mostly behind us,” said Jim Rogers, president and CEO. “In addition, we generated over $100 million of free cash flow during the quarter and remain on track to meet our objective of positive full year 2009 free cash flow.”


(In millions, except per share amounts)
2Q2009

2Q2008
Sales revenue $1,253 $1,834
Earnings per diluted share $0.89 $1.48
Earnings per diluted share
excluding asset impairments and restructuring charges, net, and accelerated depreciation costs* $0.86 $1.53
Net cash provided by operating activities $255 $132

*For reconciliations to reported company and segment sales revenue and earnings see Tables 3, 4 and 5 in the accompanying second-quarter 2009 financial tables.

Sales revenue in second quarter 2009 was $1.3 billion, a 32 percent decrease compared with second quarter 2008. Sales revenue for both second quarter 2009 and second quarter 2008 included contract ethylene sales resulting from the fourth-quarter 2006 divestiture of the polyethylene business. Also included in second-quarter 2008 sales revenue were contract polymer intermediates sales resulting from the fourth-quarter 2007 divestiture of PET polymers manufacturing facilities and related businesses in Mexico and Argentina. Excluding these items for both periods, sales revenue declined by 27 percent due to a decline in sales volume of 13 percent primarily attributed to the global recession, and lower selling prices in response to lower raw material and energy costs particularly in the Performance Chemicals and Intermediates and Performance Polymers segments. For reconciliations to reported company and segment sales revenue, see Table 4 in the accompanying second-quarter 2009 financial tables.

Operating earnings in second quarter 2009 were $131 million compared with operating earnings of $172 million in second quarter 2008. Excluding asset impairments and restructuring charges, net, in both second quarter 2009 and second quarter 2008, and accelerated depreciation costs in second quarter 2008, operating earnings were $128 million in second quarter 2009 and $178 million in second quarter 2008. Operating earnings declined in all segments except Fibers due to lower sales volume, lower capacity utilization resulting in higher unit costs, and costs related to the reconfiguration of the Longview, Texas, site. Compared to first quarter 2009, operating earnings increased due to an 11 percent increase in sales volume, excluding contract ethylene sales in both periods, and lower raw material and energy costs. Operating earnings benefited in both first and second quarter 2009 from cost reduction actions.

2Q 2009 Segment Results

Coatings, Adhesives, Specialty Polymers and Inks – Sales revenue declined by 27 percent primarily due to lower sales volume and lower selling prices. The lower sales volume was due to weak customer demand attributed to the global recession, particularly for products sold into the automotive, building and construction, and packaging markets. Operating earnings were $48 million in second quarter 2009 compared to $51 million in second quarter 2008 excluding asset impairments and restructuring charges, net, in both quarters. Operating earnings declined slightly as lower raw material and energy costs and cost reduction actions were more than offset by lower sales volume and lower capacity utilization resulting in higher unit costs, including costs related to the reconfiguration of the Longview, Texas, site. Compared to first quarter 2009, operating earnings increased significantly due to a 22 percent increase in sales volume attributed to seasonality and improved customer buying patterns, lower raw material and energy costs, and cost reduction actions.

Fibers – Sales revenue increased by 1 percent as higher selling prices more than offset lower sales volume. The higher selling prices were in response to higher raw material and energy costs. Sales volume declined as higher acetate tow volume was more than offset by lower volumes for acetate yarn and acetyl chemical products. Operating earnings increased to $74 million in second quarter 2009 compared with $62 million in second quarter 2008 due to higher selling prices, cost reduction actions, and a favorable shift in product mix, partially offset by lower sales volume.

Performance Chemicals and Intermediates – Sales revenue declined by 51 percent, and excluding contract ethylene sales resulting from the divestiture of the polyethylene business, declined by 42 percent due to lower selling prices and lower sales volume. The lower selling prices were primarily due to lower raw material and energy costs and the lower sales volume was primarily in olefin-based derivatives and was attributed to the global recession. Operating earnings were $5 million in second quarter 2009 compared with $58 million in second quarter 2008 excluding asset impairments and restructuring charges and accelerated depreciation costs in second quarter 2008. The decline was due to lower selling prices, lower sales volume, lower capacity utilization resulting in higher unit costs, and approximately $15 million in costs related to the reconfiguration of the Longview, Texas, site, partially offset by lower raw material and energy costs and cost reduction actions.

Performance Polymers – Sales revenue declined by 31 percent, and excluding contract polymer intermediates sales to divested manufacturing facilities in second quarter 2008 declined by 25 percent due to lower selling prices. The lower selling prices were primarily due to a decline in raw material and energy costs, primarily for paraxylene. Sales volume excluding contract polymer intermediates sales was unchanged as higher volume from the company’s IntegRex technology based PET facility was offset by lower volume from the company’s conventional PET manufacturing assets which were significantly rationalized in first quarter 2008. Operating earnings were $3 million in second quarter 2009 compared with $6 million in second quarter 2008, excluding asset impairments and restructuring charges and accelerated depreciation costs in second quarter 2008. Operating earnings decreased slightly due to lower selling prices and higher unit costs resulting from lower polyester stream utilization, mostly offset by lower raw material and energy costs and cost reduction actions. Compared to first quarter 2009, operating results improved significantly due to higher selling prices while raw material and energy costs were unchanged, and improved capacity utilization resulting in lower unit costs. The negative impact on results was lower in the second quarter compared with the first quarter as efforts continued to improve the performance of the IntegRex-based PET facility.

Specialty Plastics – Sales revenue declined by 26 percent due to lower sales volume and lower selling prices. The decline in sales volume was attributed to the global recession which has weakened demand for plastic resins, including copolyester products sold into the packaging, consumer and durable goods markets, and for cellulosic plastics sold into the LCD market. Operating earnings, excluding asset impairments and restructuring charges, net, in second quarter 2009, declined to $7 million in second quarter 2009 from $13 million in second quarter 2008. The decline was due to lower sales volume, lower capacity utilization resulting in higher unit costs, lower selling prices and an unfavorable shift in product mix, partially offset by lower raw material and energy costs and cost reduction actions. Compared to first quarter 2009, operating results improved due to a 19 percent increase in sales volume primarily in the Asia Pacific and North America regions for copolyester products sold into the packaging, consumer and durable goods markets, and improved capacity utilization resulting in lower unit costs.

Income Taxes

During the second quarter 2009, the company changed its tax accounting method to accelerate the timing of deductions for manufacturing repairs expense. The change will result in a more than $100 million positive cash flow impact in second half 2009 consisting of lower estimated tax payments and a refund of previously paid taxes. This change also impacted other tax deductions resulting in increased tax expense of $7 million and a 39 percent effective tax rate for the second quarter 2009. The company expects the full year 2009 effective tax rate to be approximately 33 percent.

Cash Flow

Eastman generated $255 million in cash from operating activities during second quarter 2009, primarily due to solid net earnings and a reduction in working capital. The company continues to expect to generate positive free cash flow (cash from operations less capital expenditures and dividends) for full year 2009.

Outlook

Commenting on the outlook for third quarter and full year 2009, Rogers said: “Although the global economic environment remains challenging with limited visibility, we have taken the necessary cost reduction actions required to deliver solid results. In the second half of the year, we expect demand to remain similar to current levels and for raw material and energy costs to increase slightly. As a result, we expect third-quarter 2009 earnings per share to be approximately $1.10. In addition, we expect full-year 2009 earnings per share to be towards the high end of the $2.00 and $3.00 range we have previously provided. “