KINGSPORT, Tenn., April 24, 2008 – Eastman Chemical Company (NYSE:EMN) today announced earnings from continuing operations of $1.46 per diluted share for first quarter 2008 versus $1.10 per diluted share for first quarter 2007. Excluding the items described in the following paragraph, first-quarter 2008 earnings from continuing operations were $1.48 per diluted share, while first-quarter 2007 earnings from continuing operations were $1.19 per diluted share. For reconciliations to reported company and segment earnings, see Tables 3, 5 and 6 in the accompanying first-quarter 2008 financial tables. For discussion of discontinued operations, see “Discontinued Operations” paragraph in this release.
Included in the results for first quarter 2008 were asset impairments and restructuring charges of $17 million ($12 million after tax), primarily severance and pension charges from the decision to close a previously impaired site in the United Kingdom, accelerated depreciation costs of $2 million ($1 million after tax), and net deferred tax benefits of $11 million. First- quarter 2007 results included accelerated depreciation costs of $14 million ($9 million after tax).
"Despite considerable economic uncertainty in the U.S., our first-quarter earnings per share excluding items increased by 24 percent year-over-year,” said Brian Ferguson, chairman and CEO. "We continue to make good progress offsetting high and volatile raw material and energy costs, and we also benefit from our global geographic profile and diverse product portfolio."
Sales revenue for first quarter 2008 was $1.7 billion, a 6 percent increase over first quarter 2007. Sales revenue for both first quarter 2008 and first quarter 2007 included contract ethylene sales resulting from the fourth-quarter 2006 divestiture of the polyethylene business. Also included in first-quarter 2008 sales revenue was contract polymer intermediates sales resulting from the fourth-quarter 2007 divestiture of PET polymers manufacturing facilities and related businesses in Mexico and Argentina. First-quarter 2007 sales revenue included sales from the divested Mexico and Argentina PET manufacturing facilities. Excluding these items for both periods, sales revenue increased by 9 percent as higher selling prices more than offset a decline in sales volume of 2 percent. For reconciliations to reported company and segment sales revenue, see Tables 4 and 5 in the accompanying first-quarter 2008 financial tables.
Operating earnings in first quarter 2008 were $168 million compared with operating earnings of $154 million in first quarter 2007. Excluding asset impairments and restructuring charges in first quarter 2008 and accelerated depreciation costs in both periods, operating earnings were $187 million in first quarter 2008 compared with $168 million in first quarter 2007. The increase was due to improved operating results in the Performance Polymers and Fibers segments. The company's first-quarter 2008 raw material and energy costs increased by greater than $150 million compared with first quarter 2007.
Segment Results 1Q 2008 versus 1Q 2007
Coatings, Adhesives, Specialty Polymers and Inks – Sales revenue increased by 13 percent primarily due to higher selling prices in response to higher raw material and energy costs and the favorable euro versus the U.S. dollar exchange rate. Sales volume increased slightly as higher volume in Europe and Asia more than offset lower volume in North America. Operating earnings for the segment declined to $59 million in first quarter 2008 from $65 million in first quarter 2007 as higher raw material and energy costs were partially offset by higher selling prices.
Fibers – Sales revenue increased by 8 percent due to increased sales volume and higher selling prices. The increased sales volume was attributed to customer buying patterns for acetate tow product lines in the Asia Pacific region. The higher selling prices were in response to higher raw material and energy costs, particularly for wood pulp and methanol. Operating earnings increased to $68 million in first quarter 2008, a new quarterly record, compared with $59 million in first quarter 2007 primarily due to increased sales volume and higher selling prices.
Performance Chemicals and Intermediates – Sales revenue increased by 12 percent as higher selling prices more than offset lower sales volume. Both selling prices and sales volume were significantly impacted by contract ethylene sales resulting from the divestiture of the polyethylene business in fourth quarter 2006. Excluding the contract ethylene sales, PCI's sales revenue increased 9 percent due to higher selling prices which more than offset an 8 percent decline in sales volume. The lower sales volume was primarily due to lower production volumes for bulk olefins product lines resulting from the previously reported shutdown of a cracking unit in fourth quarter 2007. Operating earnings, excluding asset impairments and restructuring charges and accelerated depreciation costs, were $61 million in first quarter 2008, equal to first quarter 2007, as higher selling prices offset both higher raw material and energy costs and lower sales volume.
Performance Polymers –Sales revenue declined by 13 percent primarily due to the divestiture of the PET polymers manufacturing facilities and related businesses in Mexico and Argentina in fourth quarter 2007. Excluding contract polymer intermediate sales to divested manufacturing facilities, sales revenue from U.S. PET manufacturing sites increased 11 percent as higher selling prices in response to higher raw material and energy costs more than offset sales volume that declined by 3 percent due to actions associated with the continued transformation of the PET business. First-quarter 2008 and 2007 results included accelerated depreciation costs of $1 million and $7 million, respectively, while first-quarter 2008 results also included asset impairments and restructuring charges of $1 million. Excluding these items for both periods, operating results for U.S. PET manufacturing sites improved to a loss of $4 million in first quarter 2008 compared to a loss of $25 million in first quarter 2007. The improvement was due primarily to improved operation of the company's South Carolina PET facility based on IntegRex™ technology. With the closing of the sale of its European PET and PTA assets in first quarter 2008, the company has completed the divestiture of all of its PET and PTA assets located outside the U.S.
Specialty Plastics – Sales revenue increased by 6 percent due primarily to favorable foreign currency exchange rates. Sales volume increased slightly as increased volume for copolyester products in packaging, consumer and durable goods was mostly offset by lower volumes elsewhere. Operating earnings were $17 million in first quarter 2008 compared with $18 million in first quarter 2007. The slight decline was due to higher raw material and energy costs which were mostly offset by favorable foreign currency exchange rates.
Discontinued Operations
In first quarter 2008, the company completed the sale of its PET polymers and PTA manufacturing facilities in the Netherlands and the PET polymers manufacturing facility in the United Kingdom and related businesses for approximately $340 million, subject to working capital adjustments, and retained approximately $10 million of working capital. The company recognized a gain of $18 million, net of tax, related to the sale of these businesses. During first quarter 2007, the company recorded asset impairments and restructuring charges of $21 million for its PET polymers manufacturing facility in Spain, which it sold in second quarter 2007. With the closing of the sale of the company's European PET and PTA assets in first quarter 2008, the company has exited the PET business in the European region. Results from sales of PET products manufactured at the Spain, the Netherlands, and the United Kingdom sites, including impairments and restructuring charges of those operations, and gains and losses from disposal of those assets and businesses, are presented as discontinued operations and are therefore not included in results from continuing operations under generally accepted accounting principles.
Cash Flow
Eastman used $53 million in cash in operating activities during first quarter 2008 due primarily to a seasonal build up in working capital. In first quarter 2007, the company contributed $100 million to its U.S. defined benefit pension plan and does not expect to contribute to that pension plan in 2008. During first quarter 2008, the company repurchased shares in the amount of $245 million at an average price of $64 per share.
Outlook
Commenting on the outlook for second quarter 2008, Ferguson said: "Current business conditions include a softening U.S. economy, global economic uncertainty, and volatile raw material and energy costs. However, due to our global geographic profile and diverse product portfolio, we expect continued solid results in all of our segments during the quarter. As a result, we expect second-quarter 2008 earnings per share to be slightly above our first-quarter 2008 earnings per share of $1.48, excluding gains and charges in both periods related to strategic decisions."
Eastman will host a conference call with industry analysts on April 25 at 8:00 a.m. EDT. To listen to the live webcast or a replay of the conference call, go to www.eastman.com, Investors, Presentations. To listen via telephone, the dial-in number is (913) 312-0865, passcode number 6775748. A telephone replay will be available continuously from 11:00 a.m. EDT, April 25, to 12:00 midnight EDT, May 4, at 888-203-1112, passcode number 6775748.
Eastman manufactures and markets chemicals, fibers and plastics worldwide. It provides key differentiated coatings, adhesives and specialty plastics products; is a major supplier of cellulose acetate fibers; and produces PET polymers for packaging. 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 2007 sales of $6.8 billion and approximately 10,500 employees. For more information about Eastman and its products, visit www.eastman.com.
First Quarter 2008 Financial Tables**
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Forward Looking Statements: This news release includes forward-looking statements concerning current expectations for future economic and business conditions; raw material and energy costs; costs of and improved financial performance from strategic decisions and actions; 2008 pension contributions; and company and segment earnings for second quarter 2008. 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 2007 and the Form 10-Q to be filed for first quarter 2008, available on the Eastman web site at www.eastman.com in the Investors, SEC filings section.