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Eastman Announces First-Quarter 2007 Financial Results

Published on 2007-05-07. Author : SpecialChem

KINGSPORT, Tenn. -- Eastman Chemical Company (NYSE:EMN - News) announced earnings of $0.91 per diluted share for first quarter 2007 versus earnings of $1.27 per diluted share for first quarter 2006. Excluding the items described in the following paragraph, first-quarter 2007 earnings were $1.19 per diluted share, while first-quarter 2006 earnings were $1.36 per diluted share. For reconciliations to reported company and segment earnings, see Tables 3, 5 and 6 in the accompanying first-quarter 2007 financial tables.

Included in the results for first quarter 2007 were accelerated depreciation costs of $14 million resulting from continuing restructuring actions at the company's Longview, Texas, and Columbia, S.C., facilities and asset impairments and restructuring charges of $21 million primarily related to the recently announced divestiture of the company's San Roque, Spain, PET facility. First quarter 2006 results included asset impairments and restructuring charges of $7 million.

"Operating earnings for the company remained strong year over year with the exception of our PET business," said Brian Ferguson, chairman and CEO. "We continue to make good progress offsetting high and volatile raw material and energy costs, and we remain confident the actions being taken with our PET business will substantially improve results in the Performance Polymers segment."

Sales revenue for first quarter 2007 was $1.8 billion, flat compared with first quarter 2006. First quarter 2007 results included contract ethylene sales resulting from the divestiture of the polyethylene business while first quarter 2006 results included sales from divested product lines. Excluding the contract ethylene sales and sales from the divested product lines, sales revenue increased by 10 percent due to higher sales volume of 5 percent and higher selling prices. For reconciliations to reported company and segment sales revenue, see Tables 4 and 5 in the accompanying first-quarter 2007 financial tables.

Operating earnings in first quarter 2007 were $135 million compared with operating earnings of $184 million in first quarter 2006. Excluding accelerated depreciation from first quarter 2007 and asset impairments and restructuring charges from both first quarter 2007 and first quarter 2006, operating earnings were $170 million in first quarter 2007 compared with $191 million in first quarter 2006. The decline was due primarily to lower operating results in the Performance Polymers segment. The company's first-quarter 2007 raw material and energy costs increased by approximately $50 million compared with first quarter 2006.

Segment Results 1Q 2007 versus 1Q 2006

Coatings, Adhesives, Specialty Polymers and Inks - Sales revenue declined by 1 percent as higher selling prices were more than offset by lower sales volume, particularly in adhesives product lines. The lower sales volume was attributed to the divestiture of the company's Epolene product lines in fourth quarter 2006 and reduced demand in certain adhesives products. Excluding asset impairments and restructuring charges of $7 million for first quarter 2006, operating earnings for the segment increased to $65 million in first quarter 2007 from $62 million in first quarter 2006 due to higher selling prices more than offsetting higher raw material and energy costs and lower sales volume.

Fibers - Sales revenue increased by 2 percent as higher selling prices were offset by lower sales volume. The higher selling prices were due to efforts to offset higher raw material and energy costs, particularly for wood pulp and methanol. The lower sales volume was attributed to customer buying patterns for both acetyl chemicals and acetate yarn product lines. Operating earnings declined to $59 million in first quarter 2007 compared with $66 million in first quarter 2006 primarily due to lower sales volume and higher raw material and energy costs.

Performance Chemicals and Intermediates - Sales revenue increased by 27 percent as higher sales volume more than offset lower selling prices, with both sales volume and selling prices significantly impacted by contract ethylene sales resulting from the divestiture of the polyethylene business. Excluding the contract ethylene sales and divested product lines associated with the Arkansas manufacturing facility, PCI's sales revenue increased 18 percent due to an increase in sales volume of 14 percent and higher selling prices. The higher sales volume and increased selling prices were attributed to strong demand, particularly for olefin-based derivative products in Asia Pacific and the United States. Operating earnings, excluding asset impairments and restructuring charges and accelerated depreciation, increased to $61 million in first quarter 2007 compared with $41 million in first quarter 2006 due to higher selling prices and increased sales volume, with contract ethylene sales having minimal impact.

Performance Polymers - Sales revenue declined by 22 percent due to the divestiture of the polyethylene business during the fourth quarter 2006. Sales revenue for the continuing PET polymers product lines increased 9 percent due to higher sales volume primarily in Latin America attributed to continued strong demand in the region. First quarter 2007 results included asset impairments and restructuring costs of $21 million and accelerated depreciation of $7 million. Excluding those items, operating results for continuing PET product lines declined to a loss of $23 million in first quarter 2007 compared to a loss of $6 million in first quarter 2006. The decline, primarily in North America, was due to lower selling prices and higher and continued volatile raw material and energy costs which resulted in compressed gross margins. The results were impacted by costs associated with the new PET facility based on IntegRex technology becoming fully operational and the timing of the commercial launch of ParaStar PET which is produced from the IntegRex facility.

Specialty Plastics - Sales revenue increased by 13 percent due primarily to increased sales volume and higher selling prices. The increased sales volume was due to continued market development efforts, particularly in copolyester product lines. Operating earnings were $18 million in both periods as increased sales volume and higher selling prices were mostly offset by higher raw material and energy costs, particularly for paraxylene.

Cash Flow

Eastman used $66 million in cash from operating activities during first quarter 2007 which included a $100 million contribution to its U.S. defined benefit pension plan. The company does not plan to make additional contributions to its U.S. defined benefit pension plan in 2007. Priorities for use of available cash continue to be to pay the dividend, fund targeted growth initiatives, and to repurchase shares under the authorized share repurchase plan. During the first quarter, share repurchases totaled $33 million.

Outlook

Commenting on the outlook for second quarter 2007, Ferguson said, "During the second quarter, we expect continued solid results in all of our segments, with the exception of Performance Polymers, despite continued high and volatile raw material and energy costs for the company. For the Performance Polymers segment, we anticipate improved results sequentially as the positive impacts of the company's IntegRex technology PET facility are partially offset by continued challenging business conditions. As a result, we expect second-quarter 2007 earnings per share excluding items related to ongoing strategic decisions to be between the middle to the low end of the First Call range of analyst estimates. The current range of analyst estimates on First Call for second quarter 2007 is $1.14 to $1.64, with a mean estimate of $1.33."

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. As a Responsible Care® company, Eastman is committed to achieving the highest standards of health, safety, environmental and security performance. Founded in 1920 and headquartered in Kingsport, Tenn., Eastman is a FORTUNE 500 company with 2006 sales of $7.5 billion and approximately 11,000 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; operation of new manufacturing facilities; costs of and improved financial performance from strategic restructuring decisions and actions; and earnings of the company and its segments for second-quarter 2007. 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-K filed for full-year 2006 and the Form 10-Q to be filed for first quarter 2007, available on the Eastman web site in the Investors, SEC filings section.

Source: Eastman Chemical Company


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