KINGSPORT, Tenn., July 24, 2008 – Eastman Chemical Company (NYSE:EMN) today announced earnings from continuing operations of $1.48 per diluted share for second quarter 2008 versus $1.19 per diluted share for second quarter 2007. Excluding the items described in the following paragraph, second-quarter 2008 earnings from continuing operations were $1.53 per diluted share, while second-quarter 2007 earnings from continuing operations were $1.32 per diluted share. Second-quarter 2008 earnings from continuing operations included a decline in the provision for income taxes compared with second quarter 2007. See “Provision for Income Taxes” below. For reconciliations to reported company and segment earnings, see Tables 3, 5 and 6 in the accompanying second-quarter 2008 financial tables.
Included in the results for second quarter 2008 were accelerated depreciation costs of $3 million and asset impairments and restructuring charges of $3 million. Second-quarter 2007 results included accelerated depreciation costs of $14 million and asset impairments and restructuring charges of $2 million.
"Given the sharp increase in raw material and energy costs during the quarter and the continuing global economic uncertainty, our year-over-year increase in earnings per share is further evidence of the strength and diversity of our portfolio of businesses," said Brian Ferguson, chairman and CEO.
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(In millions, except per share amounts) 2Q2008 2Q2007
Sales revenue $1,834 $1,764
Earnings per diluted share from continuing operations $1.48 $1.19
Earnings per diluted share from continuing operations
excluding accelerated depreciation costs, asset
impairments and restructuring charges*
$1.53 $1.32
Net cash provided by operating activities $132 $165
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*For reconciliations to reported company and segment earnings see Tables 3, 5 and 6 in the accompanying second-quarter 2008 financial tables.
Sales revenue for second quarter 2008 was $1.8 billion, a 4 percent increase compared with second quarter 2007. Sales revenue for both second quarter 2008 and second quarter 2007 included contract ethylene sales resulting from the fourth-quarter 2006 divestiture of the polyethylene business. Also included in second-quarter 2008 sales revenue were contract polymer intermediates sales resulting from the fourth-quarter 2007 divestiture of PET polymers manufacturing facilities and related businesses in Mexico and Argentina. Second-quarter 2007 sales revenue included sales from the divested Mexico and Argentina PET manufacturing facilities. Excluding these sales for both periods, sales revenue increased by 8 percent as higher selling prices in response to higher raw material and energy costs more than offset a 4 percent decline in sales volume. For reconciliations to reported company and segment sales revenue, see Tables 4 and 5 in the accompanying second-quarter 2008 financial tables.
Operating earnings in second quarter 2008 were $172 million compared with operating earnings of $160 million in second quarter 2007. Excluding accelerated depreciation costs and asset impairments and restructuring charges from both periods, operating earnings were $178 million in second quarter 2008 compared with $176 million in second quarter 2007. The company's second-quarter 2008 raw material and energy costs increased by approximately $200 million compared with second quarter 2007.
Segment Results 2Q 2008 versus 2Q 2007
Coatings, Adhesives, Specialty Polymers and Inks – Sales revenue increased by 10 percent primarily due to higher selling prices in response to higher raw material and energy costs, particularly for propylene, propane and adhesives raw materials. Sales volume declined slightly due primarily to the divestiture of certain adhesives product lines and to lower sales volume in North America which was mostly offset by higher sales volume in Asia Pacific. Operating earnings for the segment, excluding a gain related to the divestiture of certain product lines, were $51 million in second quarter 2008 compared with $66 million in second quarter 2007 as higher raw material and energy costs were partially offset by higher selling prices.
Fibers – Sales revenue increased by 9 percent due primarily to higher selling prices. The higher selling prices were in response to higher raw material and energy costs, particularly for wood pulp and methanol. Operating earnings were $62 million in second quarter 2008 compared with $51 million in second quarter 2007 due to customer buying patterns and higher selling prices primarily in Asia Pacific.
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 by 8 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 volume for bulk olefins product lines resulting from the previously announced shutdown of a cracking unit in fourth quarter 2007 which was partially offset by higher sales volume for acetyl product lines. Operating earnings, excluding accelerated depreciation costs in both periods and asset impairments and restructuring charges in second quarter 2008, were $58 million in second quarter 2008 compared with $64 million in second quarter 2007, as higher raw material and energy costs, particularly for propylene, propane, and natural gas, more than offset higher selling prices.
Performance Polymers – Sales revenue declined by 24 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 intermediates sales to divested manufacturing facilities, sales revenue from U.S. PET manufacturing sites declined by 4 percent as a 14 percent decline in sales volume was mostly offset by higher selling prices in response to higher raw material and energy costs, particularly for paraxylene and ethylene glycol. The decline in sales volume was due to rationalization of higher cost PET and intermediates assets as part of the continued transformation of the PET business. Excluding accelerated depreciation costs and asset impairments and restructuring charges for both periods, operating results for U.S. PET manufacturing sites improved to operating earnings of $6 million in second quarter 2008 compared to a loss of $10 million in second quarter 2007. The improvement was due primarily to improved operation of the company's South Carolina PET facility based on IntegRex™ technology.
Specialty Plastics – Sales revenue increased by 17 percent due to an 8 percent increase in sales volume, particularly in Asia Pacific and North America, higher selling prices, a favorable shift in product mix, and favorable foreign currency exchange rates. Excluding accelerated depreciation costs and asset impairments and restructuring charges in second quarter 2007, second-quarter 2008 operating earnings were $13 million, down from $20 million in second quarter 2007 due to higher raw material and energy costs, particularly for paraxylene and ethylene glycol, which were partially offset by higher selling prices and favorable currency exchange rates.
Cash Flow
Eastman generated $132 million in cash from operating activities during second quarter 2008. The company repaid $72 million of notes that matured during the quarter and reduced borrowings under a euro credit facility by $103 million. Priorities for use of available cash continue to be to pay the dividend, to fund targeted growth initiatives, and to repurchase shares under the authorized share repurchase plan. During the second quarter 2008, share repurchases totaled $25 million.
Provision for Income Taxes
The second-quarter 2008 effective tax rate declined year over year to 25 percent primarily due to the estimated benefit resulting from a federal gasification investment tax credit associated with the company’s expected capital spending in 2008 on the Beaumont, Texas industrial gasification project. The company expects that its effective tax rate for 2008 will be approximately 30 percent including the estimated full year benefit from the federal gasification investment tax credit. The company expects that it will continue to benefit from this federal investment tax credit through 2010, and estimates that the impact on the company’s provision for income taxes will be greater after 2008.
Outlook
Commenting on the outlook for third quarter 2008, Ferguson said: “Current business conditions include a softening U.S. economy and global economic uncertainty. In addition, we expect a continued significant rise in raw material and energy costs, particularly for propane, paraxylene, and natural gas. Due to our global geographic profile and diverse product portfolio, we expect third-quarter 2008 earnings per share from continuing operations to be similar to our third-quarter 2007 earnings per share, excluding gains and charges in both periods related to strategic actions.”
Eastman will host a conference call with industry analysts on July 25 at 8:00 a.m. EDT. To listen to the live webcast of the conference call, go to www.eastman.com, Investors, Presentations. To listen via telephone, the dial-in number is (913) 981-5583, passcode number 9849067. A telephone replay will be available continuously from 11:00 a.m. EDT, July 25, to 12:00 midnight EDT, August 3, at 888-203-1112, passcode number 9849067.
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.
2nd Quarter 2008 Financial Tables
Forward Looking Statements: This news release includes forward-looking statements concerning current expectations for: future economic and business conditions; raw material and energy costs; capital spending on, and the resulting benefit from an investment tax credit for, the Beaumont, Texas industrial gasification project and the effective tax rate for the company; accounting gains and costs from previous strategic decisions and actions; and earnings for third 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-Q filed for first quarter 2008 and the Form 10-Q to be filed for second quarter 2008, available on the Eastman web site at www.eastman.com in the Investors, SEC filings section.