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Eastman Announces Third-Quarter 2004 Earnings

Published on 2004-10-29. Author : SpecialChem

KINGSPORT, Tenn. -- Eastman Chemical Company (NYSE:EMN) announced earnings of $0.49 per diluted share for third quarter 2004 versus a loss of $4.35 per diluted share for third quarter 2003. Excluding the items described below for both periods, third-quarter 2004 earnings per diluted share were $0.79 compared with third-quarter 2003 earnings per diluted share of $0.26.

Included in third-quarter 2004 earnings were asset impairments and restructuring charges of $42 million and a net deferred tax benefit of $8 million. Third-quarter 2003 results included asset impairments and restructuring charges of $496 million. For additional information, see "Asset Impairments and Restructuring Charges and Net Deferred Tax Benefit" below.

"Despite continued increases in raw material and energy costs, our earnings in the third quarter and first nine months of 2004 confirm the improvements we have made in the company that have strengthened our profitability," said Brian Ferguson, chairman and CEO. "We are on track for full-year 2004 earnings to be our best since the year 2000."

Operating earnings in third quarter 2004 were $73 million compared with an operating loss of $440 million in third quarter 2003. Excluding asset impairments and restructuring charges for both periods, operating earnings were $115 million in third quarter 2004 compared with $56 million in third quarter 2003. The year-over-year improvement was attributed to higher sales volume, an ongoing focus on more profitable businesses and product lines, and cost reduction efforts. The company also said that increased selling prices were more than offset by historically high raw material and energy costs, which increased year-over-year by over $150 million for key raw materials.

Sales revenue for third quarter 2004 was $1.65 billion, a 14 percent increase over third quarter 2003. The increase in sales revenue was primarily due to higher selling prices and higher sales volume. Third-quarter 2004 and third-quarter 2003 results included sales revenue from restructured, divested and consolidated product lines in the coatings, adhesives, specialty polymers and inks (CASPI) segment. Excluding sales from those product lines for both periods, sales revenue increased by 25 percent and sales volume increased by 13 percent.

Division and Segment Results 3Q 2004 versus 3Q 2003

Eastman Division's third-quarter 2004 external sales revenue increased by 9 percent compared with third quarter 2003 primarily due to higher selling prices and increased sales volume. Third-quarter 2004 and third-quarter 2003 results included sales revenue from restructured, divested and consolidated product lines in the CASPI segment. Excluding sales from those product lines for both periods, Eastman Division's sales revenue increased by 30 percent and sales volume increased by 20 percent.

Third-quarter 2004 operating earnings for Eastman Division were $46 million compared with an operating loss of $466 million in third quarter 2003. Third-quarter 2004 operating earnings included asset impairments and restructuring charges of $37 million. Third-quarter 2003 operating earnings included asset impairments and restructuring charges of $495 million. Excluding those items for both periods, operating earnings increased year-over-year due to an ongoing focus on more profitable businesses and product lines, increased sales volume, higher selling prices and cost reduction efforts that more than offset higher raw material and energy costs.

Coatings, Adhesives, Specialty Polymers and Inks - External sales revenue declined by 15 percent primarily due to the divestiture of certain businesses and product lines on July 31, 2004. Sales revenue for continuing product lines in the segment increased by 20 percent primarily due to an increase in sales volume of 17 percent and higher selling prices. The increase in sales volume for the continuing product lines was attributed to improved end-market demand resulting from strong economic growth, especially in North America.

Third-quarter 2004 operating earnings for the CASPI segment included asset impairments and restructuring charges of $4 million. Third-quarter 2003 operating earnings included asset impairments and restructuring charges of $452 million. Excluding those items in both periods, operating earnings increased substantially year-over-year as a result of the company's ongoing focus on more profitable businesses and product lines, higher sales volume and selling prices in the continuing product lines, and cost reduction efforts that more than offset higher raw material and energy costs.

Performance Chemicals and Intermediates - External sales revenue increased by 42 percent due to increased sales volume and higher selling prices. The increased sales volume was attributed to improved end-market demand due to strong economic growth and the initiation of long-term supply arrangements with key customers. Third-quarter 2004 and third-quarter 2003 operating earnings included asset impairments and restructuring charges of $30 million and $42 million respectively. Excluding those charges for both periods, operating earnings increased substantially due primarily to higher sales volume, higher selling prices and cost reduction efforts that more than offset higher raw material and energy costs.

Specialty Plastics - External sales revenue increased by 22 percent due primarily to higher sales volume. The higher sales volume was attributed mainly to strong demand for products in new applications, including packaging, eyewear and housewares. Operating earnings increased as a result of higher sales volume and cost reduction efforts that more than offset higher raw material and energy costs.

Voridian Division's third-quarter 2004 external sales revenue increased by 20 percent year-over-year due primarily to higher selling prices and increased sales volume. Operating earnings increased due to higher sales volume and cost reduction efforts that more than offset higher raw material and energy costs.

Polymers - External sales revenue increased by 23 percent due to higher selling prices and increased sales volume. The increased sales volume was mainly the result of continued strong end-market demand for PET polymers, particularly in North America, driven in part by increased substitution of PET polymers for other materials. Operating earnings increased slightly as higher selling prices and higher sales volume offset particularly high raw material costs, especially for paraxylene and ethylene glycol.

Fibers - External sales revenue increased by 13 percent primarily due to higher sales volume, particularly for acetate tow in Asia and acetyl chemicals. Operating earnings increased as higher sales volume more than offset higher raw material and energy costs.

Developing Businesses Division's third-quarter 2004 sales revenue was $31 million compared with $21 million for third quarter 2003. Operating results for the division declined due primarily to increased spending for growth initiatives and higher costs associated with the restructuring of Cendian Corporation. The company also recently announced the pending divestiture of Ariel Research Corporation. These actions support the division's strategy of narrowing its focus to align more closely with the company's core capabilities.

Asset Impairments and Restructuring Charges and Net Deferred Tax Benefit

During third quarter 2004, Eastman recognized pretax asset impairments and restructuring charges of $42 million. Included in these charges were non-cash asset impairments of $28 million and restructuring charges of $14 million. The non-cash asset impairments primarily related to certain fixed assets in the performance chemicals product lines within the performance chemicals and intermediates segment that are being rationalized due to increased foreign competition. In addition, the company recognized restructuring charges of $14 million primarily related to previously announced employee separation programs and ongoing cost reduction efforts.

The company also recorded a net deferred tax benefit of $8 million to recognize the expected utilization of capital loss carryforwards.

Cash Flow

Eastman generated $119 million in cash from operating activities during the third quarter of 2004, a decrease of $22 million compared with third quarter 2003. In the third quarters of 2004 and 2003, the company made $3 million and $98 million respectively in contributions to its U.S. defined benefit pension plans. The decline in cash from operating activities was primarily due to an increase in accounts receivables resulting from continued strong sales revenue and a decline in accounts payables due to the timing of purchases.

Outlook

Commenting on outlook for the fourth quarter, Ferguson said: "Although fourth quarter is typically our lowest earnings quarter due primarily to seasonality and planned maintenance, we continue to benefit from our actions to improve profitability and strong economic conditions. However, we expect that historically high raw material and energy costs will increase in the fourth quarter from third-quarter levels. Pricing will, therefore, continue to be a key determinant of our profitability. As a result, we expect fourth-quarter 2004 earnings per share excluding any asset impairments and restructuring charges to be within the current First Call analysts' fourth-quarter 2004 range of estimates, which is $0.42 to $0.63 per share."

Headquartered in Kingsport, Tenn., Eastman manufactures and markets chemicals, fibers and plastics worldwide. The company had 2003 sales of $5.8 billion.

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; and overall selling prices, sales volume, raw material and energy costs, and earnings for fourth quarter and full-year 2004. 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.

Source: Eastman


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