Kingsport Times-News: Eastman looks back and ahead

Eastman looks back and ahead

Hank Hayes • Feb 4, 2019 at 8:30 AM

KINGSPORT – “Trade issues make business people nervous.”

That’s what Eastman Board Chair and CEO Mark Costa told Wall Street analysts in a Friday conference call while trying to make sense of last year’s challenging fourth quarter which pulled down an otherwise positive year for the Kingsport-based global specialty chemical company.

The U.S.-China trade dispute continues to be listed by Eastman as a near-term headwind.

Eastman reported fourth quarter profit of 24 cents per share and earnings, adjusted for non-recurring costs, at $1.39 per share, but those results did not meet Wall Street expectations. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of $1.60 per share.

Eastman also posted revenue of about $2.38 billion in the period, which also did not meet Wall Street forecasts. Four analysts surveyed by Zacks expected $2.42 billion.

Still, for full year 2018, Eastman delivered $10.2 billion in sales revenue, a 6 percent increase driven by higher selling prices in three of four business segments.

“I’m proud of our accomplishments for the full year,” Costa told analysts. “ … Beyond creating our own growth, we are positioning ourselves for long-term sustainable growth … we had 10 new plant startups last year, which is a record for us.”

Eastman Executive Vice President and Chief Financial Officer Curt Espeland reminded analysts that through nine months, the company’s revenue was up 8 percent, its earnings before interest and taxes was up 6 percent and its earnings per share was up 13 percent despite $240 million of higher raw material and distribution costs.

“As the third quarter ended, the business environment became more challenging as all of you know,” Espeland noted.

The upside of 2018, according to Eastman, was the company had double-digit growth in new business revenue from innovation, continued disciplined cost management, more than $1 billion in free cash flow, returned $718 million to stockholders and increased its dividend for the ninth consecutive year.

Specialty products like Tritan and Cristex continue to lead the company’s portfolio, Costa pointed out.

While expecting slower economic growth, Eastman anticipates adjusted earnings per share growth of between 6-10 percent and believes it is on track for about $500 million in new business revenue in 2020.

“In this current environment, we continue to execute what we can control, namely innovating through our enterprise, managing cost and allocating our strong free cash flow in a disciplined manner,” Costa said. “And we see strong evidence these core elements are working despite the significant macroeconomic challenges we faced in Q4.”

As for the trade war, if that gets completely resolved, it will be an upside for Eastman, Costa predicted.

“My opinion is if the trade war doesn’t escalate further, that fear subsides,” Costa stressed. “Things are going to be viewed as more stable and we will expect some demand recovery but modest.”

Espeland concluded: “Given what we know today, we expect the issues we faced in the fourth quarter will get progressively better in 2019.”

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