Eastman Chemical Company (NYSE:EMN) announced its first-quarter 2019 financial results.
“We began 2019 with many of the challenges from the fourth quarter continuing in the first quarter, including reduced demand for specialty products in China and Europe resulting from trade issues, which also reduced flow through of lower-cost raw materials,” said Mark Costa, Board Chair and CEO. “Despite these challenges, adjusted EBIT increased by 28 percent in the first quarter from the fourth quarter demonstrating that we are gaining momentum. The contributions of our innovation-driven growth model continue to give us confidence in the resiliency of our portfolio and the sustainability of our cash flow going forward.” See Table 4A for reconciliation of fourth-quarter 2018 adjusted EBIT to reported EBIT.
Segment Results 1Q 2019 versus 1Q 2018
Additives & Functional Products – Sales revenue decreased particularly for adhesives resins products attributed to continued competitive pressures and for tire additives products attributed to global trade-related pressures. In addition, sales revenue was negatively impacted by an unfavorable shift in foreign currency exchange rates and lower selling prices, particularly for care chemicals due to cost pass-through contracts.
Reported and adjusted EBIT decreased primarily due to lower sales volume and an unfavorable shift in foreign currency exchange rates.
Advanced Materials – Sales revenue decreased primarily due to lower specialty plastics sales volume and an unfavorable shift in foreign currency exchange rates. The lower specialty plastics sales volume was attributed to continued customer inventory destocking related to uncertainty caused by the U.S. – China trade dispute. Performance films and advanced interlayers volume and product mix was relatively unchanged.
Reported and adjusted EBIT decreased primarily due to lower sales volume and an unfavorable shift in foreign currency exchange rates.
Chemical Intermediates – Sales revenue decreased primarily due to lower bulk ethylene sales volume resulting from the refinery-grade propylene investment, which reduced bulk ethylene production while maintaining propylene production. Sales revenue was also negatively impacted by lower selling prices resulting from lower market prices due to raw material price declines primarily for a few olefin products, particularly glycols.
Reported EBIT increased due to coal gasification incident net costs in first quarter 2018. Adjusted EBIT decreased primarily due to lower sales volume and selling prices declining slightly more than raw material costs primarily for a few olefin products, particularly glycols.
Fibers – Sales revenue decreased primarily due to lower acetate tow sales volume, attributed to China trade-related issues and other customer buying patterns, as well as lower acetate tow selling prices.
Reported EBIT included coal gasification incident net costs in first quarter 2018. Reported and adjusted EBIT decreased primarily due to lower acetate tow sales volume somewhat offset by increased textiles products sales volume and lower raw material costs.
Cash Flow
The company continues to expect to generate greater than $1.1 billion of free cash flow (cash from operating activities less net capital expenditures) in 2019. Priorities for uses of available cash include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives, and repurchasing shares.
In first quarter 2019, $5 million net cash was used in operating activities and free cash flow was $(111) million due to a normal seasonal working capital increase. In first quarter 2019, the company returned $212 million to stockholders, with $87 million of dividends and $125 million of share repurchases. See Tables 5A and 5B.
2019 Outlook
Commenting on the outlook for full-year 2019, Costa said: “We delivered strong sequential earnings growth in the first quarter and expect strong sequential earnings growth in the second quarter. We are doing a good job of sequentially increasing spreads in specialty products, while also driving new business growth leveraging our innovation-driven growth model. However, we are operating in a difficult global business environment in the first half of the year as challenges from the fourth quarter persist. These include slow global economic growth in part due to the delay in settling the U.S.-China trade dispute, slow flow through of lower-cost raw materials, and a stronger U.S. dollar. Given the difficult global business environment in the first half of the year and our commitment to stockholder value creation, we are taking additional aggressive cost reduction actions. Looking forward, we see signs that the macro economic challenges are lessening with an improvement in orders in March and April, which gives us confidence that the global economy will continue to strengthen in the back half of this year. Taking all of this together, we continue to expect 2019 adjusted EPS growth to be between 6 – 10 percent.”
The full-year 2019 projected earnings exclude any non-core, unusual or non-recurring items in the remaining nine months of 2019 and assume that the adjusted effective rate detailed in Tables 4A and 4B for the first three months of 2019 will be the actual rate for the full year 2019. Our 2019 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 2019 earnings excluding non-core and any unusual or non-recurring items to reported GAAP earnings without unreasonable efforts.
Quelle: Eastman
