Eastman Chemical Q3 net income down nearly 3% year-over-year to US$165M, sales up 20% to US$1.81B; restructuring charges related to Sterling Chemicals acquisition weigh on profits as higher selling prices boost revenues

KINGSPORT, Tennessee , October 28, 2011 (press release) – Eastman Chemical Company (NYSE:EMN - News) today announced earnings from continuing operations of $1.16 per diluted share for third quarter 2011 versus $1.11 per diluted share for third quarter 2010. Excluding $7 million of restructuring charges primarily for severance associated with the acquisition and integration of Sterling Chemicals, Inc., earnings from continuing operations were $1.19 per diluted share in third quarter 2011.

“Third-quarter 2011 operating earnings reflect solid performance across the company,” said Jim Rogers, Chairman and CEO. “Going forward, the strength of our core businesses and balance sheet gives us confidence our earnings will remain resilient despite the economic uncertainty.”

Sales revenue for third quarter 2011 was $1.8 billion, a 20 percent increase compared with third quarter 2010 primarily due to higher selling prices.

Operating earnings excluding restructuring charges in third quarter 2011 were $263 million compared with operating earnings of $266 million in third quarter 2010. Operating earnings in third quarter 2011 included $11 million of costs from an unplanned outage of an olefin cracking unit in Longview, Texas, and $8 million from an acetyl technology license. Operating earnings in third quarter 2010 included $22 million from the partial settlement of an insurance claim related to a power outage at the Longview, Texas, manufacturing facility. In third quarter 2011 compared with third quarter 2010, higher selling prices more than offset higher raw material and energy costs.

Segment Results 3Q 2011 versus 3Q 2010

Coatings, Adhesives, Specialty Polymers and Inks – Sales revenue increased by 14 percent primarily due to higher selling prices which were in response to higher raw material and energy costs. Operating earnings in third quarter 2011 were $82 million compared with operating earnings of $89 million in third quarter 2010. Third-quarter 2011 operating earnings included $3 million of costs from the unplanned outage of an olefin cracking unit, while third-quarter 2010 operating earnings included $9 million from the partial settlement of an insurance claim. Third-quarter 2011 operating earnings were positively impacted by higher selling prices, which more than offset higher raw material and energy costs.

Fibers – Sales revenue increased by 11 percent due to a favorable shift in product mix and higher selling prices. The favorable shift in product mix was mainly due to higher acetate tow sales volume resulting from increased utilization of the acetate tow manufacturing facility in Korea. The higher selling prices were in response to higher raw material and energy costs, particularly for wood pulp. Operating earnings in third quarter 2011 increased to $92 million compared with $89 million in third quarter 2010 due to higher acetate tow sales volume in Asia Pacific and higher selling prices, mostly offset by higher raw material and energy costs.

Performance Chemicals and Intermediates – Sales revenue increased by 39 percent due to higher selling prices and a favorable shift in product mix. The higher selling prices were in response to higher raw material and energy costs. The favorable shift in product mix was due to increased sales revenue from plasticizer product lines, $8 million from an acetyl technology license, and $15 million of sales revenue from the recently acquired Sterling Chemicals business. Operating earnings in third quarter 2011 increased to $78 million excluding restructuring charges compared to $74 million in third quarter 2010. Third-quarter 2011 operating earnings included $8 million of costs from the unplanned outage of an olefin cracking unit and $8 million from an acetyl technology license. Operating earnings in third quarter 2010 included $12 million from the partial settlement of an insurance claim. In third quarter 2011 compared with third quarter 2010, operating earnings were positively impacted by higher selling prices and the favorable shift in product mix more than offsetting higher raw material and energy costs.

Specialty Plastics – Sales revenue increased by 4 percent as higher selling prices were partially offset by lower sales volume. The higher selling prices were in response to higher raw material and energy costs, particularly for paraxylene. The lower sales volume was attributed to weakened demand for copolyester product lines, particularly in packaging, consumer durable goods and LCD end markets, customer inventory destocking, and some customer shift to other plastic materials that do not use paraxylene as a raw material. Operating earnings were $29 million in both third quarter 2011 and third quarter 2010 as higher selling prices were offset by higher raw material and energy costs and lower sales volume.

Cash Flow

Eastman generated $212 million in cash from operating activities during third quarter 2011 driven by strong net earnings. Inventories increased during the quarter primarily due to preparation for planned manufacturing maintenance in the fourth quarter. Third-quarter 2011 cash flows included $28 million of a total anticipated $110 million tax payment for the gain on the sale of the PET business completed in first quarter 2011. During third quarter 2011, share repurchases totaled $115 million.

Outlook

Commenting on the outlook for fourth quarter and full year 2011, Rogers said: "For the remainder of the year, we expect sales volume to decline due to normal seasonality and customer inventory destocking. We also expect continued volatility in raw material and energy costs. As a result, we expect fourth-quarter 2011 earnings per share to be higher than fourth quarter 2010 and for full-year 2011 earnings per share to be approximately $4.62, excluding asset impairments and restructuring charges and gains."

The Company completed the sale of the polyethylene terephthalate ("PET") business, related assets at the Columbia, South Carolina, site, and technology of its Performance Polymers segment on January 31, 2011. The PET business, assets, and technology sold were substantially all of the Performance Polymers segment. Performance Polymers segment operating results are presented as discontinued operations for all periods presented and are therefore not included in results from continuing operations under accounting principles generally accepted in the United States.

In third quarter 2011, the Company’s Board of Directors declared a two-for-one split of the Company’s common stock in the form of a 100 percent stock dividend. Stockholders of record as of September 15, 2011 were issued one additional share of common stock on October 3, 2011 for each share held. Treasury shares were treated as shares outstanding in the stock split. All shares and per share amounts have been adjusted for all periods presented for the stock split. Eastman Chemical Company (NYSE:EMN - News) today announced earnings from continuing operations of $1.16 per diluted share for third quarter 2011 versus $1.11 per diluted share for third quarter 2010. Excluding $7 million of restructuring charges primarily for severance associated with the acquisition and integration of Sterling Chemicals, Inc., earnings from continuing operations were $1.19 per diluted share in third quarter 2011. For reconciliation to reported company and segment earnings, see Tables 3 and 4 in the accompanying third-quarter 2011 financial tables.

 
TABLE 1 – STATEMENTS OF EARNINGS
      Third Quarter     First Nine Months
(Dollars in millions, except per share amounts; unaudited)     2011     2010     2011     2010
                         
Sales     $ 1,812       $ 1,507       $ 5,455       $ 4,379
Cost of sales       1,392         1,085         4,139         3,256
Gross profit    
 
420
        422         1,316         1,123
                         
Selling, general and administrative expenses       116         114         350         311
Research and development expenses       41         42         116         108
Asset impairments and restructuring charges (gains), net       7         --         (8 )       3
Operating earnings       256         266         858         701
                         
Net interest expense       20         25         57         75
Other charges (income), net       (2 )       (3 )       (14 )       11
Earnings from continuing operations before income taxes       238         244         815         615
Provision for income taxes from continuing operations       73         82         258         207
Earnings from continuing operations     $ 165       $ 162       $ 557       $ 408
                         
Earnings from discontinued operations, net of tax       --         8         8         11
Gain from disposal of discontinued operations, net of tax       --         --         31         --
Net earnings     $ 165       $ 170       $ 596       $ 419
                         
Basic earnings per share                        
Earnings from continuing operations     $ 1.19       $ 1.13       $ 3.96       $ 2.83
Earnings from discontinued operations       --         0.06         0.28         0.08
Basic earnings per share     $ 1.19       $ 1.19       $ 4.24       $ 2.91
                         
Diluted earnings per share                        
Earnings from continuing operations     $ 1.16       $ 1.11       $ 3.86       $ 2.77
Earnings from discontinued operations       --         0.05         0.27         0.08
Diluted earnings per share     $ 1.16       $ 1.16       $ 4.13       $ 2.85
                         
                         
Shares (in millions) outstanding at end of period       137.6         144.3         137.6         144.3
                         
Shares (in millions) used for earnings per share calculation                        
Basic       139.1         143.8         140.6         144.3
Diluted       142.4         146.6         144.1         147.2
 
 
 

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