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Eastman reports mixed first quarter results

Hank Hayes • Apr 30, 2020 at 6:30 PM

KINGSPORT — Eastman’s first quarter revenue was down slightly from the first quarter of last year, but its earnings were up.

Revenue for the Kingsport-based specialty products company was $2.2 billion for the quarter compared to $2.3 billion in the first quarter of last year. Adjusted earnings per diluted share were $2.03 compared to $1.77 in last year’s first quarter. The performance beat Wall Street expectations for earnings, but not for revenue.

“We delivered strong year-over-year earnings growth and impressive free cash flow, demonstrating the power of our innovation and the discipline of our operational execution,” said Mark Costa, board chair and CEO. “However, the impact of the COVID-19 global pandemic has resulted in unprecedented challenges as we move forward. I’m proud of how we have responded by taking actions to keep our employees safe and maintain the operational integrity of our manufacturing facilities. We also moved quickly to generate strong cash flow and ensure we had significant sources of liquidity. We are well-positioned to be resilient through this difficult period and to rebound strongly when global economic growth returns.”

Corporate Results 1Q 2020 versus 1Q 2019

Eastman reported sales revenue decreased primarily due to lower selling prices. The lower selling prices were primarily due to lower raw material and energy prices and increased competitive activity, particularly for Chemical Intermediates and tire additives and adhesives resins product lines in the Additives & Functional Products segment. Sales volume modestly increased in personal care and wellness, water treatment, architectural coatings, agriculture, and consumables end markets. This growth was mostly offset by lower volume attributed to weak demand in transportation and textile end markets due to COVID-19.

Reported and adjusted EBIT (earnings before interest and taxes) increased due to higher sales volume, lower raw material and energy costs, and lower variable compensation costs. This growth was partially offset by $20-$30 million lower volume and less favorable product mix as a result of COVID-19 and an unfavorable shift in foreign currency exchange rates. Adjusted EBIT margin increased by 220 basis points.

In first quarter 2020, cash from operating activities was $171 million and free cash flow (cash from operating activities less net capital expenditures) was $72 million, reflecting disciplined working capital management. In first quarter 2020, the company returned $120 million to stockholders, with $90 million of dividends and $30 million of share repurchases.

Priorities for uses of available cash include payment of the quarterly dividend, repayment of substantially more than $400 million of debt, and modest share repurchases to offset dilution.

2020 Outlook

Commenting on the outlook for full-year 2020, Costa said: “In this extraordinarily challenging environment, visibility is severely limited. As a result, we are focused on the things we can control. First, we are substantially increasing our cost reduction targets to be approximately $150 million of net savings, including adjusting our operations to end-market demand, significantly reducing discretionary spend, and deferring some site turnarounds. In addition, we’ve taken steps to strengthen our cash flow including reducing capital expenditures by approximately $100 million to between $325 and $375 million. We also expect working capital to be a source of more than $250 million of cash flow beyond our previous expectations. Our capital allocation will remain disciplined, including funding our attractive dividend, reducing debt by substantially more than our original target of $400 million, and limiting share repurchases to offset dilution.”

Due to the heightened level of uncertainty related to the impact of COVID-19, the company is withdrawing its 2020 full-year earnings and cash flow forecast guidance.

Eastman’s stock closed at $60.51 per share on Thursday, down 4.78% from Wednesday.

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