KINGSPORT, Tenn., October 23, 2008 – Eastman Chemical Company (NYSE:EMN) today announced earnings from continuing operations of $1.33 per diluted share for third quarter 2008 versus $0.30 per diluted share for third quarter 2007. Excluding the items described in the following paragraph, third-quarter 2008 earnings from continuing operations were $1.35 per diluted share, while third-quarter 2007 earnings from continuing operations were $1.27 per diluted share. For reconciliations to reported company and segment earnings, see Tables 3, 5 and 6 in the accompanying third-quarter 2008 financial tables.
Included in the results for third quarter 2008 were accelerated depreciation costs of $3 million and asset impairments and restructuring charges of $2 million. Third-quarter 2007 results included accelerated depreciation costs of $9 million and asset impairments and restructuring charges of $114 million primarily related to the divestiture of the company’s PET polymers facilities in Mexico and Argentina.
"We delivered solid third-quarter earnings despite significant raw material and energy cost volatility, uncertain prospects for the global economy, and difficulty in the financial markets," said Brian Ferguson, chairman and CEO. “We continue to benefit from the diversity of our portfolio of businesses and the actions we have taken over the last five years to improve our profitability and strengthen our financial position.”
Sales revenue for third quarter 2008 was $1.8 billion, an 8 percent increase compared with third quarter 2007. Sales revenue for both third quarter 2008 and third quarter 2007 included contract ethylene sales resulting from the fourth-quarter 2006 divestiture of the polyethylene business. Also included in third-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. Third-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 12 percent as higher selling prices in response to higher raw material and energy costs more than offset a 3 percent decline in sales volume. For reconciliations to reported company and segment sales revenue, see Tables 4 and 5 in the accompanying third-quarter 2008 financial tables.
Operating earnings in third quarter 2008 were $174 million compared with operating earnings of $46 million in third quarter 2007. Excluding accelerated depreciation costs and asset impairments and restructuring charges from both periods, operating earnings were $179 million in third quarter 2008 compared with $169 million in third quarter 2007. The company's third-quarter 2008 raw material and energy costs increased by approximately $225 million compared with third quarter 2007.
Segment Results 3Q 2008 versus 3Q 2007
Coatings, Adhesives, Specialty Polymers and Inks – Sales revenue increased by 11 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 due primarily to lower sales volume in North America in part due to the divestiture of certain adhesives product lines, and lower sales volume in Europe which was partially offset by higher sales volume in Asia Pacific. Operating earnings, excluding a gain in third quarter 2007, were $55 million in third quarter 2008 and $58 million in third quarter 2007, as lower sales volume and higher raw material and energy costs were partially offset by higher selling prices.
Fibers – Sales revenue increased by 4 percent primarily due to higher selling prices in response to higher raw material and energy costs, particularly for wood pulp and methanol. Operating earnings were $65 million in third quarter 2008 and $66 million in third quarter 2007.
Performance Chemicals and Intermediates – Sales revenue increased by 17 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 19 percent due to higher selling prices in response to higher raw material and energy costs, which more than offset a 2 percent decline in sales volume. Operating earnings, excluding accelerated depreciation costs and asset impairments and restructuring gains and charges in both periods, were $65 million in third quarter 2008 and $51 million in third quarter 2007, as higher selling prices more than offset higher raw material and energy costs.
Performance Polymers – Sales revenue decreased by 14 percent primarily due to the divestiture of the PET polymers manufacturing facilities and related businesses in Mexico and Argentina in fourth quarter 2007. Excluding third-quarter 2008 contract polymer intermediates sales to divested manufacturing facilities and third-quarter 2007 sales from the divested Mexico and Argentina PET manufacturing facilities, sales revenue from U.S. PET manufacturing sites increased by 4 percent as 17 percent higher selling prices in response to higher raw material and energy costs, particularly for paraxylene and ethylene glycol, were partially offset by a 12 percent decline in sales volume. The decline in sales volume was due to the shutdown of higher cost PET assets in the first half of 2008 and was also attributed to weaker demand for bottled carbonated soft drinks and lighter-weight water bottles. 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 $1 million in third quarter 2008 compared to a loss of $3 million in third quarter 2007. The improvement was due primarily to higher selling prices and actions to improve results at the company’s South Carolina PET facility, including the new PET facility based on IntegRex™ technology, partially offset by higher raw material and energy costs and the impact of lower sales volume.
Specialty Plastics – Sales revenue increased by 17 percent primarily due to a 8 percent increase in sales volume, particularly in Asia Pacific and North America, and higher selling prices in response to higher raw material and energy costs. Sales volume increased primarily due to growth in copolyester products in packaging, consumer and durable goods and cellulose esters used in liquid crystal display (“LCD”) screens. Third-quarter 2008 operating earnings were $6 million and $13 million in third quarter 2007 as higher raw material and energy costs, particularly for paraxylene and ethylene glycol, more than offset higher selling prices and the impact of increased sales volume.
Cash Flow
Eastman generated $214 million in cash from operating activities during third quarter 2008, reflecting continued strong net earnings partially offset by increases in working capital. During the third quarter 2008, share repurchases totaled $231 million. Priorities for use of available cash for the remainder of 2008 are to pay the dividend, to fund targeted growth initiatives, and to repurchase shares under the authorized share repurchase plan.
Outlook
Commenting on the outlook for fourth quarter 2008, Ferguson said: “We continue to benefit from our global geographic profile, diverse product portfolio and solid financial position. We also continue to confront economic weakness in North America and Europe, slowing demand growth in Asia, and volatile raw material and energy costs. Given our current expectations for weak economic growth through the end of the year, we expect fourth-quarter 2008 earnings per share from continuing operations excluding gains and charges related to strategic actions to be near the low end of the current range of analysts’ estimates on First Call, which is $0.90 per share.”
Eastman will host a conference call with industry analysts on Oct. 24 at 8:00 a.m. ET. 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) 312-1278, passcode number 3704916. A telephone replay will be available continuously from 11:00 a.m. ET, Oct. 24, to 12:00 midnight ET, Nov. 2, at 888-203-1112, passcode number 3704916.
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.
3rd-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; accounting gains and costs from previous strategic decisions and actions; and earnings for fourth 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 second quarter 2008 and the Form 10-Q to be filed for third quarter 2008, available on the Eastman web site at www.eastman.com in the Investors, SEC filings section.