Eastman Chemical's (EMN) Strategic Actions Should Bear Fruit


On Aug 5, we issued an updated research report on chemicals maker Eastman Chemical (EMN). While the company should gain from its cost-cutting measures, capacity additions and synergies from acquisitions, it remains exposed to raw material cost and competitive pressures.
Eastman Chemical, a Zacks Rank #3 (Hold) stock, saw higher profit in second-quarter 2014, reported on Jul 28, as weakness in its specialty fluids and intermediates business was more than offset by gains in other areas. Adjusted earnings topped the Zacks Consensus Estimate while sales missed. The company reaffirmed its earnings guidance for 2014 and expects to benefit from its strategic actions this year.
Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses remains its strength. It also benefits from business restructuring and cost-cutting measures.
The acquisition of Solutia represents a major step in Eastman Chemical’s strategy to boost its foothold in the emerging markets, especially in Asia Pacific. Moreover, the recent 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 should also gain from increased capacity additions. The acetate tow manufacturing facility, the company’s joint venture investment in China, is now in operation and producing commercial quantities. Moreover, Eastman Chemical is seeing strong adoption of Tritan copolyester product line and it is increasing Tritan capacity at its Kingsport facility. It is also expanding capacity for its Therminol heat transfer fluids. 
However, uncertainty regarding the timing of a recovery in Europe remains a concern. Automobile as well as commercial construction markets still remain soft in Europe.
Moreover, Eastman Chemical remains 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 second-half 2014, albeit at a lesser extent than what was witnessed in the first half.
Weak demand for adhesives resins in specific markets and lower pricing due to competitive pressure is also affecting the company’s Adhesives and Plasticizers segment. Eastman Chemical is also seeing lower demand for acetate tow. 
Other Stocks to Consider
Other companies in the chemical industry worth considering include LyondellBasell Industries NV (LYB) and Celanese Corporation (CE). While LyondellBasell carries a Zacks Rank #1 (Strong Buy), Celanese sports a Zacks Rank #2 (Buy).
Read the Full Research Report on BP
Read the Full Research Report on EMN
Read the Full Research Report on CE
Read the Full Research Report on LYB

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