Eastman Announces Third-Quarter 2017 Financial Results
KINGSPORT, Tenn., October 26, 2017 - Eastman Chemical Company (NYSE:EMN) today announced reported earnings of $2.22 per diluted share for third quarter 2017 versus $1.56 per diluted share for third quarter 2016. Adjusted earnings were $2.19 per diluted share for third quarter 2017 versus $1.86 per diluted share for third quarter 2016. For detail of the adjustments and reconciliation to reported company and segment earnings for all periods presented, see Tables 3A and 4A.
"Once again, we delivered outstanding year-over-year growth in adjusted EPS, reflecting the strength of our portfolio as well as our ability to leverage solid underlying business conditions for growth. Our specialties continued their strong performance, marked by exceptional growth in Additives & Functional Products," said Mark Costa, Board Chair and CEO. "Over the past several weeks, we have also responded with extraordinary professionalism and decisiveness as we faced hurricanes in the U.S. and the coal gasification incident at our Kingsport facility. With both of these challenges, our ability to minimize disruption and reduce impact is a testament to our scale, vertical integration, and the tremendous capability and determination of the Eastman team."
(In millions, except per share amounts) 3Q2017 3Q2016
Sales revenue $2,465 $2,287
Operating earnings $460 $356
Adjusted operating earnings* $460 $416
Earnings per diluted share $2.22 $1.56
Adjusted earnings per diluted share* $2.19 $1.86
Net cash provided by operating activities $528 $450
*For adjusted provision for income taxes in 3Q 2017, excluded non-core items in 3Q 2017 and 2016, and reconciliation to reported company and segment earnings, see Tables 3A and 4A.
Segment Results 3Q 2017 versus 3Q 2016
Additives & Functional Products - Sales revenue increased primarily due to higher sales volume for most product lines. Operating earnings increased primarily due to higher sales volume.
Advanced Materials - Sales revenue increased due to improved product mix from higher sales volume of premium products. Operating earnings were unchanged compared to record earnings in the year ago period.
Chemical Intermediates - Sales revenue increased due to higher selling prices attributed to higher raw material prices and continued improvement in competitive conditions. Operating earnings increased primarily due to higher selling prices, lower commodity hedge levels, and lower operating costs, partially offset by higher raw material and energy costs.
Fibers - Sales revenue decreased primarily due to lower selling prices, particularly for acetate tow, attributed to lower industry capacity utilization rates. Operating earnings declined due to lower selling prices, partially offset by lower operating costs resulting from recent actions.
Eastman generated $528 million in cash from operating activities during third quarter 2017 primarily due to strong net earnings. Total borrowings decreased $187 million and share repurchases totaled $100 million during the quarter.
In first nine months 2017, the company generated cash from operations of over $1 billion and $573 million of free cash flow (defined as cash from operating activities minus capital expenditures). In addition, the company returned $498 million to stockholders with $275 million of share repurchases and $223 million of dividends. The company continues to expect to generate approximately $1 billion of free cash flow in 2017.
See Tables 5A, 5B and 6A. Priorities for uses of available cash include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives, and repurchasing shares.
Kingsport Coal Gasification Operational Incident
As previously announced, on October 4, 2017 an explosion in the Kingsport site's coal gasification area disrupted manufacturing operations. There were no serious injuries and no impact to the environment. All manufacturing operations have resumed except for coal gasification. Due to the unique advantages of our scale and integration, the company has made excellent progress in repairing the facility and implemented alternate processes to maintain operations of downstream derivative facilities of coal gasification. We expect the coal gasification area to be operable by the end of fourth quarter 2017. This, along with our mitigating actions, is expected to enable full production of acetyl chemicals and derivatives. Normal operations are expected to resume in early 2018.
While the company continues to assess the financial impact of the incident, the net impact is expected to reduce operating earnings by between $50 and $100 million. Costs in fourth quarter 2017 related to the incident are expected to be approximately $100 million, partially offset by insurance recovery expected in first half 2018.
Commenting on the outlook for full-year 2017, Costa said: "Our excellent third-quarter results build on the strong performance we have delivered throughout the year. We continue to create our own growth with innovative, high margin products in what remains an uncertain global business environment. Capital allocation and cost management are also contributing to earnings growth. As a result, our expectations for adjusted 2017 EPS growth have improved to be solidly at the high end of the previously projected range of 10 to 12 percent compared with 2016, excluding the financial impact of the Kingsport operational incident."
The full-year 2017 projected earnings exclude any non-core, unusual, or non-recurring items in fourth quarter 2017, assumes that the adjusted tax rate detailed in Tables 4A and 4B for first nine months 2017 will be the actual rate for full-year 2017, and excludes the financial impact of the Kingsport operational incident. Our 2017 financial results forecasts do not include non-core items (such as mark-to-market pension and other postretirement benefit gain or loss) or any unusual or non-recurring items, and we accordingly are unable to reconcile projected full-year 2017 earnings excluding non-core and any unusual or non-recurring items to reported GAAP earnings without unreasonable efforts.
This news release includes forward-looking statements concerning current expectations and assumptions for future global economic conditions; competitive position and acceptance of specialty products in key markets; mix of products sold; raw material and energy prices and costs, and other costs; and revenue, earnings, and cash flow for full-year 2017. Such expectations and assumptions are based upon certain preliminary information, internal estimates, and management assumptions, expectations, and plans, and are subject to a number of risks and uncertainties inherent in projecting future conditions, events, and results. Actual results could differ materially from expectations and assumptions expressed in the forward-looking statements if one or more of the underlying assumptions or expectations prove to be inaccurate or are unrealized. Important factors that could cause actual results to differ materially from such expectations are and will be detailed in the company's filings with the Securities and Exchange Commission, including the Form 10-Q filed for second quarter 2017 available, and the Form 10-Q to be filed for third quarter 2017 and to be available, on the Eastman web site at www.eastman.com in the Investors, SEC filings section, and in the slides and remarks in the public conference call and webcast detailed below.
Conference Call and Webcast Information
Eastman will host a conference call with industry analysts on October 27, 2017 at 8:00 a.m. ET. To listen to the live webcast of the conference call and view the accompanying slides, go to www.investors.eastman.com, Events & Presentations. To listen via telephone, the dial-in number is 719-325-2213, passcode number 9289488. A web replay, a replay in downloadable MP3 format, and the accompanying slides will be available at www.investors.eastman.com, Events & Presentations. A telephone replay will be available continuously from 11:00 a.m. ET, October 27 to 11:00 a.m. ET, November 6 at 888-203-1112 or 719-457-0820, passcode 9289488.
Eastman is a global advanced materials and specialty additives company that produces a broad range of products found in items people use every day. With a portfolio of specialty businesses, Eastman works with customers to deliver innovative products and solutions while maintaining a commitment to safety and sustainability. Its market-driven approaches take advantage of world-class technology platforms and leading positions in attractive end-markets such as transportation, building and construction, and consumables. Eastman focuses on creating consistent, superior value for all stakeholders. As a globally diverse company, Eastman serves customers in more than 100 countries and had 2016 revenues of approximately $9.0 billion. The company is headquartered in Kingsport, Tennessee, USA and employs approximately 14,000 people around the world. For more information, visit www.eastman.com.
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