A month has gone by since the last earnings report for Eastman Chemical (EMN). Shares have lost about 23.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Eastman Chemical due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Eastman Chemical Misses Q2 Earnings, Revenue Estimates
Eastman Chemical saw lower profits in the second quarter of 2019, hurt by lower demand for its specialty products in China and Europe due to trade issues. The company recorded profit of $258 million or $1.85 per share, down roughly 25% from the year-ago profit of $344 million or $2.39.
Barring one-time items, earnings were $1.99 per share for the quarter, down from $2.22 in the year ago-quarter. Earnings also trailed the Zacks Consensus Estimate of $2.09.
Revenues dropped around 10% year over year to $2,363 million in the quarter. The company saw lower sales across its segments. The top line missed the Zacks Consensus Estimate of $2,539.5 million.
Revenues from the Additives and Functional Products division fell 13% year over year to $823 million for the reported quarter. The decline was due to reduced sales volume, unfavorable product mix, lower selling prices and unfavourable currency swings.
Revenues from the Advanced Materials unit declined 5% year over year to $696 million. The decline is attributable to reduced sales volume due to the U.S.-China trade dispute and lower global automotive sales. Unfavorable foreign currency translation also impacted sales.
Chemical Intermediates sales went down 11% to $631 million, hurt by lower selling prices for olefins and acetyls products and reduced functional amines products sales volumes.
Fibers segment sales dropped 12% to $213 million, impacted by reduced acetate tow sales volumes due to softer market demand resulting from trade issues, customer buying patterns and general market decline.
Eastman Chemical ended the quarter with cash and cash equivalents of $186 million, down around 4% year over year. Net debt at the end of the quarter was $6,169 million, down around 5% year over year.
Eastman Chemical generated cash from operating activities of $422 million and free cash flow of $330 million during the reported quarter. The company returned $211 million to shareholders through share repurchases and dividends in the quarter.
Eastman Chemical noted that it does not expect underlying macroeconomic conditions to improve in the second half due to the challenging global business environment resulting from the trade conflict. However, it expects reduced customer inventory destocking.
The company also expects to gain from its cost reduction actions in the second half. Considering these factors, the company expects adjusted earnings per share for 2019 to be $7.50-$8.00.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -22.62% due to these changes.
Currently, Eastman Chemical has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Eastman Chemical has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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