Eastman Chemical’s (EMN) Q2 Earnings Trump, Profit Up

Eastman Chemical’s (EMN) profit rose in second-quarter 2014 as lower sales in its Specialty Fluids and Intermediates unit was offset by gains in other areas.

The TN-based chemical maker raked in profit from continuing operations (as reported) of $290 million or $1.92 per share in the quarter, a 9.8% rise from $264 million or $1.69 per share recorded a year ago.

Earnings from continuing operations, excluding one-time items, were $1.92 per share in the reported quarter, topping the Zacks Consensus Estimate of $1.84 while exceeding the year-ago adjusted earnings of $1.80 per share.

Revenues and Margins

Revenues edged up roughly 0.8% year over year to $2,460 million. It missed the Zacks Consensus Estimate of $2,519 million. The company saw higher sales across all segments barring the Specialty Fluids and Intermediates division in the quarter.

The results were mixed across geographic regions. Revenues from the U.S. and Canada moved up 1.5% year over year to $1,138 million. Sales from Asia-Pacific fell 4.1% to $654 million. Europe, Middle East and Africa (EMEA) registered a 6.9% rise in sales to $544 million while Latin American revenues fell 3.1% to $124 million.

Operating earnings (excluding one-time items) were $441 million in quarter, down 2.9% from $454 million a year ago, impacted by lower earnings in the Specialty Fluids and Intermediates segment.

Segment Review

Revenues from the Additives and Functional Products division were up 5% year over year to $452 million. Higher coatings sales volumes on strong demand across major end-use markets led to higher sales in the reported quarter.

Adhesives and Plasticizers segment sales rose 6% to $358 million as higher volume more than offset a decline in selling prices. Adhesives resins volumes rose on strong end-market demand. Lower pricing was due to sustained competitive pressure in the adhesives resins market and weak plasticizers demand across Asia Pacific and Europe.

Revenues from the Advanced Materials unit inched up 1% to $631 million as lower sales volume for core products including Flexvue coated films offset increased volume for Eastman Tritan copolyester and interlayers with acoustic properties.

Fibers segment sales rose 6% to $386 million as higher pricing and sales of acetate flake to Eastman Chemical’s acetate tow joint venture in China more than offset lower sales volume for acetate tow. Volume was affected by added industry capacity including the joint venture.

The Specialty Fluids and Intermediates division was the weak spot in the quarter with sales falling 6% to $633 million. Sales fell as a result of lower volumes due to weather-related outage at the company’s Longview facility and unplanned shutdown at the Kingsport site as well as lower sales volume for intermediates product lines.

Financials

Eastman Chemical exited the quarter with cash and cash equivalents of $175 million, down 25% year over year. Long-term debt rose 2% year over year to $4,773 million. Eastman Chemical repurchased shares worth $100 million during the quarter.

Outlook

Eastman Chemical remains optimistic in delivering strong earnings growth moving ahead. The company backed its earnings guidance for 2014 and continues to expect earnings per share (excluding non core and non-recurring items) to be between $6.70 and $7.00. The current corresponding Zacks Consensus Estimate is $6.92.

Eastman Chemical is expected to gain from specific actions that it has taken up to increase earnings as well as balanced deployment of strong cash flow for the balance of 2014.

Eastman Chemical is a Zacks Rank #3 (Hold) stock.

Some better-ranked chemical stocks include Marrone Bio Innovations, Inc. (MBII), Celanese Corporation (CE) and LyondellBasell Industries NV (LYB). While Marrone Bio Innovations carries a Zacks Rank #1 (Strong Buy), both Celanese and LyondellBasell hold a Zacks Rank #2 (Buy).