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Why Is Eastman Chemical (EMN) Down 11.6% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Eastman Chemical (EMN). Shares have lost about 11.6% 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 its most recent earnings report in order to get a better handle on the important drivers.

Eastman Chemical Tops Q4 Earnings and Sales Estimates

Eastman Chemical logged profit of $26 million or 19 cents per share for the fourth quarter of 2019, down roughly 24% from the year-ago profit of $34 million or 24 cents.

Barring one-time items, earnings were $1.42 per share for the quarter, up from $1.39 in the year ago-quarter. Earnings also topped the Zacks Consensus Estimate of $1.33.

Revenues dropped around 7% year over year to $2,205 million in the quarter. The top line, however, surpassed the Zacks Consensus Estimate of $2,171.2 million.

The company continued to faced challenging global economic conditions in the fourth quarter that impacted consumer discretionary markets including transportation.

Full-Year Results

For 2019, profit was $759 million or $5.48 per share, compared with $1,080 million or $7.56 per share a year ago. Adjusted earnings were $7.13 per share for 2019, down from $8.20 a year ago.

Revenues were $9,273 million for the full year, down around 9% year over year.

Segment Review

Revenues from the Additives and Functional Products division fell 10% year over year to $763 million for the reported quarter. The decline was due to reduced sales volume, lower selling prices and unfavorable currency swings. Volumes were hurt by softer end-market demand due to trade issues.

Revenues from the Advanced Materials unit rose 2% year over year to $638 million. The rise is attributable to higher sales volumes and favorable product mix, partly offset by slightly lower selling prices.

Chemical Intermediates sales went down 16% to $578 million, hurt by lower selling prices. Lower raw material prices and increased competitive activity impacted selling prices.

Fibers segment sales went up 7% to $226 million, aided by higher acetate tow sales volumes.
 
Financials

Eastman Chemical ended 2019 with cash and cash equivalents of $204 million, down around 10% year over year. Net debt at the end of the year was $5,578 million, down around 6% year over year.

Eastman Chemical generated cash from operating activities of $671 million and free cash flow of $554 million during the reported quarter. For the full year, cash from operating activities was $1.5 billion and free cash flow was $1.1 billion.

The company also returned $668 million to shareholders through share repurchases and dividends in 2019. It also repaid debt worth $370 million during the year.

Outlook

Eastman Chemical noted that it entered 2020 in an uncertain macroeconomic environment. Amid this environment, the company will remain focused on aggressively managing costs and growing new business revenues from innovation. The company expects slow growth to continue this year at levels similar to 2019. However, it sees lower inventory destocking in 2020. Considering these factors, the company expects adjusted earnings per share for 2020 to be $7.20-$7.60. Eastman Chemical also expects free cash flow of $1-$1.1 billion for the year.


 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -7.42% due to these changes.

VGM Scores

Currently, Eastman Chemical has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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 #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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