Eastman Chemical (EMN) is set to release its third-quarter 2014 results after the bell on Oct 30.
In the last quarter, the chemical maker delivered a 4.35% positive earnings surprise. The company saw higher profit in the quarter as weakness in its specialty fluids and intermediates business was more than offset by gains in other areas.
Eastman Chemical has beaten the Zacks Consensus Estimate in the trailing 4 quarters with an average beat of 3.85%. Let’s see how things are shaping up for this announcement.
Factors to Watch For
Eastman Chemical, in its second-quarter call, said that it expects to gain from specific actions that it has taken up to increase earnings as well as balanced deployment of strong cash flows in the remainder of 2014.
Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses remains its strength. It is benefiting from increased capacity additions, business restructuring and cost-cutting measures.
Eastman Chemical should continue to benefit from synergies related to Solutia acquisition in the September quarter. The acquisition has boosted its foothold in the emerging markets, especially in Asia Pacific. Moreover, the acquisition of BP Plc’s (BP) aviation turbine engine oil business will enable Eastman Chemical to better address the needs of the global aviation industry.
Eastman Chemical expects higher revenues and earnings for its Additives and Functional Products division in the second half of 2014, backed by strong demand in the coatings market. For the Advanced Materials unit, it sees higher sales in the second half, supported by continued strong adoption of Tritan copolyester product line and increased capacity.
However, competitive pressure may affect sales in the company’s Adhesives and Plasticizers segment. Sales volumes of acetate tow are also expected to be lower in the second half due to customer destocking in Asia Pacific, impacting operating earnings in its Fibers segment in the third quarter. In addition, maintenance outage at the company’s Longview facility may impact results in the Specialty Fluids and Intermediates division.
Moreover, Eastman Chemical remains is exposed to volatility in raw material costs and pricing pressure. Higher energy and raw material costs, particularly for propane, are expected to continue to weigh on the company’s margins in the second half, albeit at a lesser extent than what was witnessed in the first half.
Earnings Whispers
Our proven model does not conclusively show that Eastman Chemical is likely to beat the Zacks Consensus Estimate in the third quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Negative Zacks ESP: ESP for Eastman Chemical is -1.11% – the difference between the Most Accurate estimate of $1.78 and the Zacks Consensus Estimate of $1.80.
Zacks Rank #3 (Hold): Eastman Chemical’s Zacks Rank #3 when combined with an ESP of -1.11% makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other chemical stocks you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Westlake Chemical Corp. (WLK) has earnings ESP of +2.58% and sports a Zacks Rank #3 (Hold).
Ashland Inc. (ASH) has earnings ESP of +2.21% and retains a Zacks Rank #3 (Hold).
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