Eastman expects better second half

Hank Hayes • Apr 27, 2019 at 6:00 PM

KINGSPORT — The delayed settlement of the U.S.-China trade war. A stronger U.S. dollar. Higher pension costs.

Those were among the first-half 2019 headwinds cited by Eastman’s top leadership during a Friday conference call with Wall Street analysts about the company’s challenging first quarter.

Second-half tailwinds, said Eastman Chairman and CEO Mark Costa and Chief Financial Officer Curt Espeland, include that trade war being settled, an improving global economy and the company’s aggressive cost management.

Eastman, a Kingsport-based global specialty products maker, is sticking to a prediction of full-year adjusted earnings per share growth of 6-10 percent.

As for the trade war, Costa said a settlement is difficult to forecast.

“The timing of that is unknown and the details of it are not known,” Costa noted. “But based on everything we’ve seen … it seems like they are making good progress and the odds of an escalation now are going down. … From what we can tell in China, they’re pretty quiet. They’re being very careful about declaring any kind of victory inside their country … (but) I’d say the destocking is mostly playing out and behind us.”

Said Espeland: “Looking at the cadence through the quarter, January was about as expected, but after Chinese New Year, demand was sluggish and did not pick up as we had hoped. … Destocking was a substantial contributor to our volume decline. That said, March was a strong month and April orders gave us confidence we will continue to trend upward into the second quarter.”

One example of how the trade war has affected Eastman, said Costa, is that China stopped buying U.S.-made filter tow.

“We had to start shifting to our Korean facility,” Costa explained. “We have orders now from the Korean facility. We’re still in the qualification process.”

Other first quarter strategic highlights, Costa pointed out, include Eastman returning $212 million to stockholders, an 18 percent increase over the first quarter of 2018; the company announcing multiple investments in “circular economy” recycling technologies; and innovation in its Saflex and Crystex transportation products.

“To me, this reinforces the value of our innovation growth model,” Costa told analysts. “ … (With Crystex) we’re now working with more than half of the top 30 tire makers on the next generation Crystex.”

Espeland also suggested the company might have more bolt-on acquisitions similar to Eastman’s recent acquisition of Marlotherm heat-transfer fluid assets from Sasol.

“I would say our bolt-on acquisition pipeline is active,” Espeland disclosed. “There are several opportunities we’re looking at. … TYou have to make sure you do the right diligence, pay a fair price. … It’s possible you might see one or two more small acquisitions during the course of the year. We’ll see how those play out.”