Eastman Chemical (EMN) Benefits From Cost Cuts and Innovation
Eastman Chemical Company EMN is gaining from cost-cutting and productivity actions as well as its innovation-driven growth model amid certain headwinds, including consumer de-stocking.
Eastman Chemical, which is among the prominent players in the chemical space along with Dow Inc. DOW, DuPont de Nemours, Inc. DD and Celanese Corporation CE, is expected to benefit from lower operating costs from its operational transformation program. It is on track to reduce manufacturing, supply chain and non-manufacturing costs by more than $200 million for 2023, net of inflation. Pricing initiatives and lower raw material and energy costs are also expected to support the company’s bottom line.
Moreover, EMN's goal is to increase new business revenues by utilizing its innovation-driven growth strategy. Due to the company's competence in specialty products, it generated around $550 million in new business revenues from innovation in 2022. Sales volumes are expected to be supported, in 2023, by innovation and market development initiatives.
The company should also gain from its strategic acquisitions. The growth initiatives have been greatly expedited by the acquisition of Solutia, which has provided excellent growth potential in the Asia-Pacific region. Additionally, the buyout of BP Plc’s aviation turbine engine oil business has enabled Eastman Chemical to better serve the needs of the global aviation industry.
The acquisition of PremiumShield has strengthened company’s automotive base in North America, Europe and the Middle East and boosted its paint protection film pattern development capabilities. The acquisition of AiRed Technology (Dalian) Co., Ltd. will also boost growth in the paint protection films market.
Eastman Chemical also remains focused on maintaining a disciplined approach to capital allocation. Its operating cash flow increased to $410 million in the second quarter of 2023 from $245 million in the year-ago quarter. The company returned $144 million to shareholders in the second quarter of 2023 through dividends and share repurchases. Furthermore, it expects to deliver $1.4 billion in operating cash flow in 2023.
However, lingering effects from customer inventory de-stocking are expected to adversely impact Eastman Chemical’s performance in the second half of 2023. The company saw soft demand and consumer de-stocking for its consumer durables, building & construction, consumables and agriculture end markets in the second quarter. The impacts of de-stocking are likely to be felt on the company’s volumes and top line in the third quarter.
Eastman Chemical has lowered its demand growth forecast and now expects primary demand in several of its end markets to be stable compared with the first half. It also expects consumer de-stocking to persist. The company anticipates adjusted EPS in the second half of 2023 to be lower than the first half. EMN is scheduled to release third-quarter earnings on Oct 26.
Another prominent chemical maker, Dow expects net sales in the band of roughly $10.25-$10.75 billion for the third quarter. DOW remains focused on cost-savings actions and will continue to advance its longer-term strategic priorities as it faces a challenging macroeconomic environment. DOW is slated to release third-quarter earnings on Oct 24.
DuPont, in its second-quarter call, said that it sees net sales for 2023 to be in the range of $12,450-$12,550 million. Adjusted earnings per share for 2023 are forecast to be $3.40-$3.50. For third-quarter 2023, the company sees net sales of roughly $3,150 million. Adjusted earnings per share for the quarter are projected at roughly 84 cents. DD is slated to release third-quarter earnings on Nov 1.
Celanese sees adjusted earnings in the range of $2-$2.50 per share for the third quarter. The projection includes the expected roughly 30 cents impact from the M&M amortization. CE is scheduled to release third-quarter earnings on Nov 6.
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