Eastman weathers tough first quarter

Hank Hayes • Apr 25, 2019 at 9:00 PM

KINGSPORT — Eastman reported on Thursday lower revenues and earnings in this year’s first quarter compared to last year’s first quarter, but still is expecting adjusted earnings growth for full-year 2019.

“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,” Mark Costa, board Chair and CEO, said in a release. “Despite these challenges, adjusted EBIT (earnings before interest and taxes) 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.”

The Kingsport-based specialty products maker reported $2.3 billion in revenue for the quarter compared to $2.6 billion in last year’s first quarter. Adjusted earnings per diluted share were $1.77 for the quarter compared to $2.23 in last year’s first quarter. Sales revenue decreased in each of its operating segments.

During a March Regional Leaders breakfast, Costa predicted a flat first quarter. The company also confirmed during the month that it had laid off an undisclosed number of workers and cited the U.S.-China trade dispute as a reason.

Still, Eastman noted the company continues to expect to generate more 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.

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 (earnings per share) growth to be between 6-10 percent.”

Eastman’s stock closed Thursday at $80.71 per share, down $1.19.

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