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What's in Store for Eastman Chemical (EMN) in Q4 Earnings?

Anindya Barman

Eastman Chemical Company EMN is set to release fourth-quarter 2018 results after the closing bell on Jan 31.

The chemical maker saw its profits rise in the third quarter of 2018, aided by strong growth in its specialty businesses and cost management actions. The company recorded profit of $412 million or $2.89 per share, up roughly 28% from the year-ago figure of $323 million or $2.22. Adjusted earnings of $2.34 per share topped the Zacks Consensus Estimate of $2.29.

Revenues rose around 3% year over year to $2,547 million in the quarter, also exceeding the Zacks Consensus Estimate of $2,534.9 million.

Notably, Eastman Chemical topped the Zacks Consensus Estimate in each of the trailing four quarters with an average earnings beat of roughly 15.4%.

Eastman Chemical’s shares have lost around 23.7% over a year, outperforming the roughly 26.7% decline recorded by the industry.


 

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

Factors at Play

Eastman Chemical, in its third-quarter call, noted that strong volume gains in the specialty businesses, disciplined cost management and a lower effective tax rate helped it achieve adjusted earnings per share growth of 13% year over year during the first nine months of 2018. The company continues to expect adjusted earnings per share growth for full-year 2018 to be 10-14% year over year.

Revenues for Eastman Chemical for the fourth quarter is projected to rise roughly 2.6% year over year as the Zacks Consensus Estimate for the quarter is currently pegged at $2,423 million.

Revenues from Eastman Chemical’s Additives and Functional Products division is anticipated to witness a 3% rise year over year as the Zacks Consensus Estimate for the fourth quarter is pegged at $880 million. However, operating earnings (as adjusted) for the unit are expected to fall 5% as the Zacks Consensus Estimate stands at $152 million.

Advanced Materials unit’s revenues are expected to increase 6% year over year as the Zacks Consensus Estimate for the fourth quarter is $673 million. Operating earnings are expected to dip 1.1% as the Zacks Consensus Estimate stands at $93 million.

Revenues for the Chemical Intermediates segment are projected to rise 2% from the year-ago quarter as the Zacks Consensus Estimate for the fourth quarter stands at $672 million. Operating earnings for the unit are expected to be flat as the Zacks Consensus Estimate stands at $53 million.

Moreover, the Fibers segment is expected to witness a 3.5% rise in revenues year over year as the Zacks Consensus Estimate is pegged at $207 million for the fourth quarter. Operating earnings are expected to decline 2.4% as the Zacks Consensus Estimate stands at $49.8 million.

Eastman Chemical’s high margin products and its aggressive cost management actions are likely to continue to drive its earnings in the fourth quarter. The company should gain from sustained growth of its high margin specialty products. The company’s productivity measures and actions to raise selling prices of products should also support margins.

Eastman Chemical should also gain from synergies of acquisitions, especially Taminco Corporation. The Taminco acquisition has provided attractive cost and revenue synergy opportunities.

However, Eastman Chemical has been seeing a spike in raw materials costs, mostly in its chemical intermediates and additives and functional products units. Raw materials cost headwind is expected to persist in the December quarter. The company also faces headwind from higher energy costs. It is taking actions to raise selling prices of its products amid the inflationary environment.

The company’s Fibers segment is also exposed to certain challenges. The division’s results were hurt by lower acetate tow sales volume and selling prices due to reduced industry capacity utilization in the third quarter. The same is likely to continue in the to-be-reported quarter. The company expects profits for the segment to be modestly lower on a year over year basis for full-year 2018.

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 -1.33%. This is because the Most Accurate Estimate is currently pegged at $1.58 while the Zacks Consensus Estimate stands at $1.60. 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 (Sell). Note that we caution against stocks with a Zacks Rank #4 or #5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Eastman Chemical Company Price and Consensus

 

Eastman Chemical Company Price and Consensus | Eastman Chemical Company Quote

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:

New Gold Inc. NGD has an Earnings ESP of +166.67% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teck Resources Limited TECK has an Earnings ESP of +7.03% and carries a Zacks Rank #3.
 
Franco-Nevada Corporation FNV has an Earnings ESP of +3.05% and carries a Zacks Rank #3.

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