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Eastman Chemical's (EMN) Q4 Earnings, Revenues Lag Estimates

Anindya Barman

Eastman Chemical Company EMN saw its profits tumble in the fourth quarter of 2018, hurt by lower demand for its specialty products in China and increased raw material, energy and distribution costs.

The chemical maker recorded profit of $34 million or 24 cents per share for the quarter, down roughly 93% from the year-ago profit of $491 million or $3.39. The company recorded a tax benefit in the year-ago quarter as a result of tax law changes.

Barring one-time items, earnings were $1.39 per share for the quarter, down from $1.62 in the year ago-quarter. Earnings also trailed the Zacks Consensus Estimate of $1.60.

Revenues edged up around 0.6% year over year to $2,376 million in the quarter. Higher selling prices across most segments were offset by lower sales volumes in Chemical Intermediates and Advanced Materials segments. The top line missed the Zacks Consensus Estimate of $2,422.9 million.

Eastman Chemical Company Price, Consensus and EPS Surprise


Eastman Chemical Company Price, Consensus and EPS Surprise

Eastman Chemical Company price-consensus-eps-surprise-chart | Eastman Chemical Company Quote

FY18 Results

For 2018, net earnings were $1,080 million or $7.56 per share, down roughly 22% from $1,384 million or $9.47 per share recorded in 2017. Adjusted earnings were $8.20 per share, up from $7.61 per share a year ago.

Net sales for the year went up around 6% year over year to $10,151 million, aided by increased selling prices in most segments, higher volumes and better product mix.

Segment Review

Revenues from the Additives and Functional Products division were flat year over year at $851 million for the reported quarter. Higher selling prices were masked by the unfavorable foreign currency impact.

Revenues from the Advanced Materials unit fell 2% year over year to $624 million. The decline is attributable to reduced sales volume for specialty plastics due to customer inventory destocking associated with the U.S.-China trade conflict. This was partly offset by higher volumes in interlayers and performance films products in automotive and architectural markets.

Chemical Intermediates sales went up 5% to $689 million on the back of higher selling prices, partly offset by lower sales volume.

Fibers segment sales rose 6% to $212 million, driven by strong volume growth of textiles innovation products and sales of nonwovens products. This was partly offset by reduced selling prices.

Eastman Chemical ended 2018 with cash and cash equivalents of $226 million, up roughly 18% year over year. Net debt at the end of the year was $5,942 million, down around 6% year over year.

The company generated cash from operating activities of $1.54 billion and free cash flow of $1.08 billion during 2018 and returned $718 million to shareholders through share repurchases and dividends during the year. The company also repaid $316 million of debt.


Moving ahead, Eastman Chemical sees slower economic growth in 2019 and expects some of the challenges it witnessed in the fourth quarter to continue in the first quarter of 2019. The company also noted that it will remain focused on growing new business revenues leveraging its innovation-driven growth model.

The company also expects to gain from lower raw material costs and its cost management actions and will remain committed to return cash to shareholders through continued share repurchases. It expects these initiatives to more than offset the unfavorable impact of a strengthening U.S. dollar and expected higher pension costs. The company expects adjusted earnings per share growth of 6-10% in 2019.

Price Performance

Eastman Chemical’s shares have lost 18.8% over the past year, underperforming the 17.4% decline of the industry it belongs to.


Zacks Rank and Stocks to Consider

Eastman Chemical currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks worth considering in the basic materials space include Ingevity Corporation NGVT, Israel Chemicals Ltd. ICL and Quaker Chemical Corporation KWR.

Ingevity has an expected earnings growth rate of 21.5% for the current year and carries a Zacks Rank #1 (Strong Buy). Its shares have gained 29% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Israel Chemicals has an expected earnings growth rate of 5.4% for the current year and carries a Zacks Rank #1. The company’s shares have rallied 42% over the past year.

Quaker Chemical has an expected earnings growth rate of 21.1% for the current year and carries a Zacks Rank #2 (Buy). Its shares have gained 37% in the past year.

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