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Eastman Chemical Bumps up Dividend

Zacks Equity Research

Eastman Chemical Company (EMN) has raised its quarterly cash dividend to 30 cents a share from 26 cents, representing a roughly 15% increase. This lifts the company’s annual dividend to $1.20 per share from the prior payout of $1.04. The revised quarterly dividend is payable on December 31, 2012, to shareholders of record as of December 17, 2012.     

This represents the Tennessee-based company’s third cash dividend increase in two years and represents a testimony of its ability to generate healthy cash flows and earnings growth. Eastman Chemical’s free cash flow rocketed nearly two-and-a-half-fold year over year to $197 million in third-quarter 2012. The company recently said that it expects to generate more than $2 billion in free cash flows between 2012 and 2015.

Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses, is driving earnings. The company’s third quarter adjusted earnings of $1.57 a share topped the Zacks Consensus Estimate of $1.42. Revenues jumped 25% year over year to $2,259 million riding on the contributions of Solutia acquisition.

Eastman Chemical saw growth across all geographic regions in the quarter. The company raised its adjusted earnings forecast for 2012 to a range of $5.30 to $5.40 a share from its earlier view of $5.30. It expects earnings to grow to roughly $6.25 in 2013 and $8.00 in 2015. The bottom line is expected to be boosted by growth of products sold in tires and coatings markets.

Eastman Chemical’s diversified chemical portfolio and integrated and diverse downstream businesses represents the pillars of strength. The company should benefit from increased capacity additions, business restructuring and cost-cutting measures. However, the company is expected to witness a sluggish fourth quarter and raw material costs pressure. Lower pricing represents another concern.

Eastman Chemical, which competes with The Dow Chemical Company (DOW), EI DuPont de Nemours and Company (DD) and Celanese Corporation (CE), currently retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.

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