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Eastman Announces Second-Quarter 2007 Financial Results

Published on 2007-07-31. Author : SpecialChem

KINGSPORT, Tenn., -- Eastman Chemical Company announced earnings of $1.22 per diluted share for second quarter 2007 versus earnings of $1.37 per diluted share for second quarter 2006. Excluding the items described in the following paragraph, second-quarter 2007 earnings were $1.34 per diluted share, while second-quarter 2006 earnings were $1.40 per diluted share.

Included in the results for second quarter 2007 were accelerated depreciation costs of $14 million resulting from continuing actions at the company's Longview, Texas, and Columbia, S.C., facilities and asset impairments and restructuring charges of $2 million primarily related to the recently completed sale of the company's San Roque, Spain, PET facility. Second-quarter 2006 results included asset impairments and restructuring charges of $3 million.

"Our second-quarter results demonstrate that we remain focused on delivering strong earnings from our solid base of businesses," said Brian Ferguson, chairman and CEO. "At the same time, we are making great progress on our strategic initiatives, including two gasification projects in the Gulf Coast."

Sales revenue for second quarter 2007 was $1.9 billion, similar to second quarter 2006. Second-quarter 2007 sales revenue included contract ethylene sales resulting from the fourth-quarter 2006 divestiture of the polyethylene business while second-quarter 2006 sales revenue included sales from divested product lines. Excluding the contract ethylene sales and sales from the divested product lines, sales revenue increased by 6 percent due primarily to higher selling prices. For reconciliations to reported company and segment sales revenue, see Tables 4 and 5 in the accompanying second-quarter 2007 financial tables.

Operating earnings in second quarter 2007 were $168 million compared with operating earnings of $190 million in second quarter 2006. Excluding accelerated depreciation costs from second quarter 2007 and asset impairments and restructuring charges from both second quarter 2007 and second quarter 2006, operating earnings were $184 million in second quarter 2007 compared with $193 million in second quarter 2006. The decline was due primarily to lower operating results in the Performance Polymers and Fibers segments. The company's second-quarter 2007 raw material and energy costs increased by approximately $50 million compared with second quarter 2006.

Segment Results 2Q 2007 versus 2Q 2006

Coatings, Adhesives, Specialty Polymers and Inks

Sales revenue increased by 4 percent as higher selling prices, a favorable shift in product mix, and the favorable effect of a strengthening Euro versus the U.S. dollar were partially offset by lower sales volume. The lower sales volume was due to the divestiture of the company's Epolene product lines in fourth quarter 2006. Excluding asset impairments and restructuring charges of $1 million for second quarter 2006, operating earnings for the segment were $66 million in second quarter 2007 compared with best-ever results of $69 million in second quarter 2006.

Fibers

Sales revenue was unchanged 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. The lower sales volume was attributed to customer buying patterns for acetate tow and lower demand for acetyl chemicals as a result of a customer operational disruption. Operating earnings were $51 million in second quarter 2007 compared with $61 million in second quarter 2006 primarily due to lower sales volume and higher raw material and energy costs.

Performance Chemicals and Intermediates

Sales revenue increased by 28 percent due to higher sales volume, 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, PCI's sales revenue increased 19 percent due to an increase in sales volume of 13 percent and higher selling prices. As a result, operating earnings excluding accelerated depreciation costs increased to $64 million in the second quarter, which was PCI's best quarterly performance in 10 years. This compares with $45 million in operating earnings in the second quarter 2006. The higher sales revenue and operating earnings were attributed to strong demand, particularly for olefin-based derivative products and acetyl chemicals in Asia Pacific and the United States.

Performance Polymers

Sales revenue declined by 26 percent due mainly to the divestiture of the polyethylene business. Sales revenue for PET polymers product lines decreased 3 percent due primarily to lower sales volume partially offset by higher selling prices. The lower sales volume was primarily attributed to lower sales volume in the European region resulting from the divestiture of the Spain PET facility. The decrease in sales volume was partially offset by higher sales volume in North America due to increased operating rates for the company's South Carolina PET facility based on IntegRex™ technology. Second-quarter 2007 results included asset impairments and restructuring charges of $1 million and accelerated depreciation costs of $6 million. Excluding those items, operating results for continuing PET product lines were a loss of $6 million in second quarter 2007 compared to a loss of $1 million in second quarter 2006. The change, primarily in North America, was attributed to continued volatile raw material and energy costs and low PET industry operating rates which resulted in compressed gross margins. The change was partially offset by improved results for PET in Europe due to strong end-market demand and improved cost structure resulting from the divestiture of the Spain site.

Specialty Plastics

Sales revenue increased by 7 percent due primarily to higher selling prices in response to higher raw material and energy costs. Sales volume increased slightly as higher volumes in copolyester and cellulosic products were mostly offset by a decline in demand for polyester products used in photographic and optical films. Second quarter 2007 operating earnings included asset impairments and restructuring charges of $1 million and accelerated depreciation costs of $1 million. Excluding those items, operating earnings increased to $20 million in second quarter 2007 from $14 million in second quarter 2006. The increase was due primarily to higher selling prices more than offsetting higher raw material and energy costs.

Cash Flow

Eastman generated $165 million in cash from operating activities during second quarter 2007. The company completed its 2007 contribution of $100 million to its U.S. defined benefit pension plans during the first quarter 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 second quarter, share repurchases totaled $53 million.

Outlook

Commenting on the outlook for third quarter 2007, Ferguson said, "During the third quarter, we expect continued solid results in all of our segments, with the exception of Performance Polymers outside the U.S. We also expect continued high and volatile raw material and energy costs for the company. As a result, we expect third-quarter 2007 earnings per share excluding items related to ongoing strategic decisions to be slightly above third-quarter 2006 earnings per share excluding items of $1.24."

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 third-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-Q filed for the first quarter 2007 and the Form 10-Q to be filed for the second quarter 2007

Source: Eastman Chemical Company


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