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Eastman Announces Best Full-Year and Fourth-Quarter EPS in 10 Years

Published on 2006-01-30. Author : SpecialChem

KINGSPORT, Tenn.-- Eastman Chemical Company (NYSE:EMN - News) announced earnings of $0.81 per diluted share for fourth quarter 2005 versus earnings of $0.68 per diluted share for fourth quarter 2004. Excluding the items described below for both periods, fourth-quarter 2005 earnings were $0.90 per diluted share, while fourth-quarter 2004 earnings were $0.69 per diluted share.

Included in the results for fourth quarter 2005 were asset impairments and restructuring charges of $10 million, while fourth-quarter 2004 results included asset impairments and restructuring charges of $18 million and other operating income of $7 million.

"I'm extremely pleased with the progress that Eastman made this year," said Brian Ferguson, chairman and CEO. "Both full-year and fourth-quarter 2005 earnings per share were the best in 10 years, and our 2005 sales revenue was the best in the company's history. Recent structural changes we have implemented, along with the dedication of Eastman employees throughout the company, were key contributors to these outstanding results."

Operating earnings in fourth quarter 2005 were $112 million compared with operating earnings in fourth quarter 2004 of $46 million. Excluding asset impairments and restructuring charges and other operating income in both periods, operating earnings increased due primarily to higher selling prices and ongoing cost reductions. These positive impacts more than offset higher raw material and energy costs and approximately $12 million of additional costs associated with an operational disruption at the company's Longview, Texas, manufacturing facility. In fourth quarter 2005, raw material and energy costs increased by approximately $100 million compared with fourth quarter 2004.

Sales revenue for fourth quarter 2005 was $1.73 billion, a 4 percent increase over fourth quarter 2004. The increase in sales revenue was due to higher selling prices that more than offset lower sales volume.

Eastman Division Results 4Q 2005 versus 4Q 2004

Coatings, Adhesives, Specialty Polymers and Inks - External sales revenue increased by 14 percent as higher selling prices more than offset lower sales volume. The decline in sales volume was attributed primarily to the differences in seasonal buying patterns for coatings commodity product lines and the unavailability of certain raw materials for the adhesives product lines. Operating earnings increased as higher selling prices and ongoing cost reductions more than offset higher raw material and energy costs.

Performance Chemicals and Intermediates - External sales revenue increased by 10 percent as higher selling prices more than offset lower sales volume. The lower sales volume was primarily due to the impact of an operational disruption at the company's Longview, Texas, cracker facility, industry capacity additions in Asia impacting the resins intermediates product lines and continued competitive activity in the plasticizers product lines. Operating earnings increased as higher selling prices and ongoing cost reductions more than offset lower sales volume and higher raw material and energy costs.

Specialty Plastics - External sales revenue increased by 9 percent as higher selling prices more than offset lower sales volume. Despite higher sales volume for copolyester product lines year-over-year, the segment's overall sales volume declined primarily due to the lower sales volume of acetate used in photographic film. Operating results improved as higher selling prices more than offset an increase in raw material and energy costs, particularly for paraxylene and natural gas, due to the Gulf Coast hurricanes and an increase in expenditures related to growth efforts.

Voridian Division Results 4Q 2005 versus 4Q 2004

Polymers - External sales revenue declined by 6 percent as lower sales volume was partially offset by higher selling prices. The lower sales volume was attributed to several factors: the effects of higher and volatile raw material and energy costs in North America due to the Gulf Coast hurricanes, including the impact of Asian producers taking advantage of their lower raw material costs to increase their exports of PET polymers to North America and customers working down inventories, and low PET polymers industry operating rates in Europe and Latin America. Operating earnings declined slightly year-over-year as higher selling prices and ongoing cost reductions were more than offset by higher raw material and energy costs and lower sales volume.

Fibers - External sales revenue increased by 22 percent as a result of higher selling prices and higher sales volume. Operating earnings increased as the segment continued to benefit from structural changes in the acetate tow and acetate yarn markets.

Developing Businesses Division Results 4Q 2005 versus 4Q 2004 - External sales revenue for fourth quarter 2005 was $1 million compared with $29 million for fourth quarter 2004. The decline in sales revenue was attributed primarily to the shutdown of Cendian Corporation. Operating results for fourth quarter 2005 included asset impairments and restructuring charges of $2 million related to the Cendian actions, while fourth quarter 2004 results included asset impairments and restructuring charges of $15 million and other operating income of $7 million.

Corporate FY 2005 versus FY 2004

For full-year 2005, Eastman reported earnings of $6.81 per diluted share compared with full-year 2004 earnings of $2.18 per diluted share. Excluding the items described in the following paragraph for both periods, earnings for full-year 2005 were $5.93 per diluted share, while full-year 2004 earnings were $2.82 per diluted share.

Included in the results for full-year 2005 were asset impairments and restructuring charges of $33 million, other operating income of $2 million, a gain of $171 million associated with the sale of the company's investment in Genencor International, Inc., a charge of $46 million associated with the early repayment of $500 million in long-term debt, and a net deferred tax benefit of $12 million. Full-year 2004 results included asset impairments and restructuring charges of $206 million, other operating income of $7 million and a net deferred tax benefit of $90 million.

Operating earnings for full-year 2005 were $757 million compared with operating earnings for full-year 2004 of $175 million. Full-year 2005 operating earnings included asset impairments and restructuring charges of $33 million and other operating income of $2 million. Operating earnings for full-year 2004 included asset impairments and restructuring charges of $206 million and other operating income of $7 million. Excluding those items for both periods, operating earnings increased substantially as higher selling prices, a continued focus on more profitable businesses and product lines, and ongoing cost reductions more than offset lower sales volume and higher raw material and energy costs. In 2005, raw material and energy costs increased by approximately $500 million compared to the prior year.

Eastman's full-year 2005 sales revenue was $7.06 billion, a 7 percent year-over-year increase that was due to higher selling prices. Excluding sales from the restructured, divested and consolidated product lines in the CASPI segment for 2004, sales revenue increased by 15 percent and sales volume was flat for 2005 compared with 2004.

Eastman Division Results FY 2005 versus FY 2004

Coatings, Adhesives, Specialty Polymers and Inks - External sales revenue declined by 16 percent, primarily the result of the divestiture of certain businesses and product lines in third quarter 2004. Sales revenue from continuing product lines increased by 17 percent while sales volume declined by 1 percent in 2005 compared with 2004. The higher sales revenue was primarily due to higher selling prices, which were the result of improved market conditions and efforts to offset higher raw material and energy costs. For 2005, operating earnings included asset impairments and restructuring charges of $4 million and other operating income of $2 million, while 2004 operating earnings included asset impairments and restructuring charges of $81 million. Excluding those items for both periods, operating earnings increased in 2005 compared with 2004 due to higher selling prices, an increased focus on more profitable businesses and product lines, and ongoing cost reductions that more than offset higher raw material and energy costs.

Performance Chemicals and Intermediates - External sales revenue increased by 21 percent, primarily the result of higher selling prices and increased sales volume. The higher selling prices were primarily due to improved market conditions, particularly for intermediates businesses and product lines, and efforts to offset higher raw material and energy costs. Operating earnings for 2005 included asset impairments and restructuring charges of $11 million while 2004 operating earnings included asset impairments and restructuring charges of $38 million. Excluding those items for both periods, operating earnings increased as higher selling prices, increased sales volume and ongoing cost reductions more than offset higher raw material and energy costs.

Specialty Plastics - External sales revenue increased 12 percent as a result of higher selling prices. Sales volume was flat as increased sales volume for copolyester product lines was offset by lower sales volume of acetate used in photographic film. Operating earnings for 2004 included asset impairments and restructuring charges of $53 million. Excluding those charges, operating earnings declined slightly year-over-year as higher selling prices, improved product mix and ongoing cost reductions were more than offset by higher and volatile raw material and energy costs, primarily due to the impact of the Gulf Coast hurricanes, and an increase in expenditures related to growth efforts.

Voridian Division Results FY 2005 versus FY 2004

Polymers - External sales revenue increased by 15 percent as higher selling prices more than offset lower sales volume. The lower sales volume was attributed to the effects of higher and volatile raw material and energy costs in North America due to the Gulf Coast hurricanes, including the impact of an increase in Asian exports of PET polymers to North America, and low industry capacity utilization rates for PET polymers in Europe and Latin America. The 2004 operating earnings included asset impairments and restructuring charges of $13 million. Excluding those charges, operating earnings increased substantially year-over-year as higher selling prices, improved market conditions for polyethylene and for North American PET polymers prior to the Gulf Coast hurricanes, and ongoing cost reductions more than offset higher and volatile raw material and energy costs.

Fibers - External sales revenue increased by 19 percent mainly as a result of higher selling prices and increased sales volume. The increased sales volume was primarily due to the continued positive impact of structural changes in the acetate tow and acetate yarn markets. Operating earnings increased as higher selling prices and increased sales volume more than offset higher raw material and energy costs.

Developing Businesses Division Results FY 2005 versus FY 2004 - External sales revenue for 2005 was $27 million compared with $121 million for 2004. The decline was primarily due to the shutdown of Cendian Corporation. Operating results for 2005 included asset impairments and restructuring charges of $18 million primarily related to the Cendian actions, while 2004 results included asset impairments and restructuring charges of $21 million and other operating income of $7 million. Excluding those items, operating results improved year-over-year due to reduced operating losses associated with Cendian and reduced spending for growth initiatives within the segment.

Asset Impairments and Restructuring Charges

For fourth quarter 2005, asset impairments and restructuring charges totaled $10 million, primarily related to previously impaired sites. For full-year 2005, asset impairments and restructuring charges totaled $33 million, which included $18 million related to the Developing Businesses Division, primarily the shutdown of Cendian, and $15 million primarily related to previously impaired sites.

Foreign Earnings Repatriation and Provision for Income Taxes

During fourth quarter 2005, the company repatriated $321 million in undistributed foreign earnings under the provisions of the American Jobs Creation Act. Dividends were funded from existing off-shore cash and proceeds from a new credit facility. Fourth-quarter 2005 results included a tax charge of $12 million related to the repatriation and a tax credit of $15 million related to the favorable resolution of prior periods' tax contingencies.

Cash Flow

Eastman generated $764 million in cash from operations in 2005 versus $494 million in 2004. The increase was primarily due to a significant increase in earnings partially offset by higher pension contributions. Contributions to the company's U.S. defined benefit pension plans were $165 million in 2005 and $3 million in 2004. In second quarter 2005, the company completed the sale of its investment in Genencor for approximately $417 million in net cash proceeds after tax and also completed the early repayment of $500 million of its outstanding long-term debt at a cost of $544 million. In fourth quarter 2005, the company loaned $125 million to the Primester joint venture, which was used to repay third-party borrowings that had been guaranteed by Eastman. Net debt for the company, defined as total borrowings less cash and cash equivalents, declined $636 million in 2005.

Outlook

Commenting on the outlook for first quarter 2006, Ferguson said: "We are off to a good start in the quarter, led by our strong base of earnings which consists of the Fibers, CASPI, and Specialty Plastics segments. Asian imports of PET polymers into North America and challenging market conditions in certain propylene derivatives in the PCI segment are expected to be headwinds. In addition, we anticipate continued high and volatile raw material and energy costs. As a result, we believe the current range of first quarter 2006 analyst estimates on First Call, which is $1.29 to $1.54, reasonably reflects the variability in the quarter with our current expectation being that earnings will be toward the low end of the range."

Eastman manufactures and markets chemicals, fibers and plastics worldwide. It provides key differentiated coatings, adhesives and specialty plastics products; is the world's largest producer of PET polymers for packaging; and is a major supplier of cellulose acetate fibers. Founded in 1920 and headquartered in Kingsport, Tenn., Eastman is a FORTUNE 500 company with 2005 sales of $7 billion and approximately 12,000 employees.

Forward-Looking Statements: This news release includes forward-looking statements concerning current expectations for future economic and business conditions; raw material and energy costs; company strategies, actions and efforts to control and reduce costs and to increase overall selling prices and improve financial performance; the impact of Asian imports on the Polymers segment's North American PET sales; market conditions for certain PCI segment intermediates product lines; and overall selling prices, sales volume, raw material and energy costs and other costs and expenses, and earnings for first quarter 2006 for Eastman and certain of its segments. Such expectations are based upon certain preliminary information, internal estimates, and management assumptions, expectations and plans, and are subject to a number of risks and uncertainties inherent in projecting future conditions, events, and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions or expectations prove to be inaccurate or are unrealized. Important factors that could cause actual results to differ materially from such expectations are and will be detailed in the company's filings with the Securities and Exchange Commission, including the Form 10-Q filed for third quarter 2005 and the Form 10-K to be filed for full-year 2005, available on the Eastman web site at www.eastman.com in the Investors, SEC filings section.

Source: Eastman


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