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What's in Store for Eastman Chemical (EMN) in Q2 Earnings?

Zacks Equity Research

Eastman Chemical Company EMN is set to release second-quarter 2019 results after the closing bell on Jul 25. The chemical maker is expected to gain from its cost management actions, high margin products and synergies of acquisitions amid challenges including a difficult global business environment, weak demand in China and Europe and currency pressures.

Eastman Chemical’s shares have gained around 6.3% year to date, outperforming the roughly 19.3% decline recorded by the industry.


Let's see how things are shaping up for this announcement.

What do the Estimates Say?

The Zacks Consensus Estimate for revenues for Eastman Chemical for the second quarter is currently pegged at $2,540 million, indicating a roughly 3.1% year over year decline.

Revenues from Eastman Chemical’s Additives and Functional Products division are expected to witness a 5.3% decline year over year as the Zacks Consensus Estimate for the second quarter is pegged at $892 million. Advanced Materials unit’s revenues are expected to remain flat year over year as the Zacks Consensus Estimate for the second quarter is $729 million.

Revenues for the Chemical Intermediates segment are projected to decline 6.1% from the year-ago quarter as the Zacks Consensus Estimate for the second quarter stands at $666 million.

Lastly, the Fibers segment is expected to witness a 1.7% decline in revenues year over year as the Zacks Consensus Estimate is pegged at $237 million for the second quarter.

Factors to Watch For

Eastman Chemical's cost reduction actions and growth in high-margin innovation products are expected to support its earnings in the second quarter.

Eastman Chemical remains focused on growing new business revenues from innovations. The company is also focused on productivity and cost-cutting actions in the wake of the challenging business environment. It is taking a more aggressive approach to cost management this year to keep its manufacturing costs in control. The company’s actions to raise selling prices of its products amid an inflationary environment should also support margins.

Eastman Chemical should also gain from synergies of acquisitions (especially Taminco Corporation) in the June quarter. The Taminco acquisition has provided attractive cost and revenue synergy opportunities.

However, Eastman Chemical is exposed to a challenging business environment. The company, in April, said that it expects the difficult global business environment to continue through first-half 2019. The company saw lower demand for its specialty products in the first quarter in China and Europe due to trade tensions.

Sales volumes for the company’s specialty plastics are under pressure due to customer inventory destocking associated with the U.S.-China trade conflict. Volumes are likely to remain under pressure in the second quarter amid an uncertain trade environment.

The company also faces currency headwinds due to a stronger U.S. dollar. It expects roughly $30 million headwind associated with currency in the first half of 2019, mostly across Additives & Functional Products and Advanced Materials units.

Eastman Chemical’s fiber segment is also hurt by lower acetate tow selling prices and sales volumes. Trade-related issues are also hurting tow volumes.

Eastman Chemical Company Price and EPS Surprise


Eastman Chemical Company Price and EPS Surprise

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

What the Zacks Model Says

Our proven model does not show that Eastman Chemical is likely to beat estimates this quarter. That is because a stock needs to have a positive  Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Earnings ESP: Earnings ESP for Eastman Chemical is -2.39%. This is because the Most Accurate Estimate is currently pegged at $2.04 while the Zacks Consensus Estimate stands at $2.09. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Eastman Chemical currently carries a Zacks Rank #4. Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

Arconic Inc. ARNC has an Earnings ESP of +0.83% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Barrick Gold Corporation GOLD has an Earnings ESP of +13.51% and carries a Zacks Rank #2.

AK Steel Holding Corporation AKS has an Earnings ESP of +71.43% and carries a Zacks Rank #3.

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