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Eastman Chemical Company Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 3, 2010 03:31PM

Eastman Chemical Company (EMN) filed Quarterly Report for the period ended 2010-06-30. Eastman Chemical Company has a market cap of $4.62 billion; its shares were traded at around $63.8 with a P/E ratio of 10.7 and P/S ratio of 0.9. The dividend yield of Eastman Chemical Company stocks is 2.8%. Eastman Chemical Company had an annual average earning growth of 4.9% over the past 10 years.

EMN is in the portfolios of RS Investment Management, Jean-Marie Eveillard of First Eagle Investment Management, LLC, Jim Simons of Renaissance Technologies LLC, Jeremy Grantham of GMO LLC, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC, Manning & Napier Advisors, Inc.

Highlight of Business Operations:

In second quarter 2009, the Company recognized a $3 million reduction of the first quarter 2009 restructuring charge resulting in a net $23 million charge in first six months 2009. The charges, primarily for severance, resulted from a reduction in force.

In first quarter 2010, the Company adopted amended accounting guidance for transfers of financial assets which impacts the financial statement presentation for activity under the Company's $200 million accounts receivable securitization program. For periods beginning after December 31, 2009, transfers of receivables interests that were previously treated as sold and removed from the balance sheet will be included in trade receivables, net and reflected as secured borrowings on the balance sheet. The Company's Statement of Financial Position at June 30, 2010 reflects an increase in trade receivables, $200 million of which was transferred at December 31, 2009 under the securitization program and reduced cash flows from operating activities by that amount for first quarter 2010. At June 30, 2010, there were no transfers of receivables interests under the accounts receivable securitization program.

The Company generated sales revenue of $1.7 billion and $1.3 billion in second quarter 2010 and 2009, respectively and $3.3 billion and $2.4 billion in first six months 2010 and 2009, respectively. Sales revenue increases for both second quarter and first six months 2010 compared to comparable 2009 periods were due to higher sales volume primarily attributed to improved customer demand due to the upturn in the global economy and the positive impact of growth initiatives, and increased selling prices in response to higher raw material and energy costs.

Operating earnings were $257 million in second quarter 2010 compared with $131 million in second quarter 2009 and $439 million in first six months 2010 compared with $156 million in first six months 2009. Operating earnings were negatively impacted by restructuring charges of $3 million in both second quarter and first six months 2010 and $23 million in first six months 2009. Operating earnings in second quarter 2009 were positively impacted by a $3 million reduction of a first quarter 2009 restructuring charge. The increase in both comparable periods was due to higher sales volume and higher capacity utilization which led to lower unit costs. In addition, higher selling prices more than offset higher raw material and energy costs. Operating earnings in second quarter 2010 were negatively impacted by costs recognized during the quarter related to the previously announced power outage at the Company's Longview, Texas manufacturing facility, which were mostly offset by a partial settlement of a related insurance claim and were primarily reflected in the Performance Chemicals and Intermediates ("PCI") and Coatings, Adhesives, Specialty Polymers, and Inks ("CASPI") segments. In first six months 2010, operating earnings included the cumulative negative impact of approximately $25 million related to the outage, net of these insurance proceeds from partial settlement. The Company expects additional insurance proceeds in the second half of the year. First six months 2010 operating earnings also included $12 million from acetyl license revenue. Second quarter and first six months 2009 operating earnings included approximately $20 million in costs related to the reconfiguration of the Longview, Texas facility.

The Company used $19 million in cash from operating activities during first six months 2010 compared to $337 million provided by operating activities in first six months 2009. Excluding the $200 million impact of the adoption of amended accounting guidance discussed above in "Presentation of Non-GAAP Financial Measures", Eastman generated $181 million in cash from operating activities primarily due to higher net earnings partially offset by an increase in working capital. Excluding the impact of the adoption of this amended accounting guidance, the Company expects to generate free cash flow of approximately $300 million for full year 2010, assuming capital expenditures of approximately $250 million and U.S. defined benefit pension plan funding in an amount of approximately $25 million. Free cash flow is defined as cash from operating activities less capital expenditures and dividends.

Gross profit and gross profit as a percentage of sales in second quarter and first six months 2010 increased compared to second quarter and first six months 2009 in all segments except Performance Polymers. The increase in both comparable periods was due to higher sales volume and higher capacity utilization which led to lower unit costs. In addition, higher selling prices more than offset higher raw material and energy costs. Gross profit in second quarter 2010 included costs recognized during the quarter related to the previously announced power outage, which were mostly offset by a partial settlement of a related insurance claim and were primarily reflected in the PCI and CASPI segments. In first six months 2010, gross profit included the cumulative negative impact of approximately $25 million related to the outage, net of these insurance proceeds from partial settlement. First six months 2010 gross profit also included $12 million from acetyl license revenue. Second quarter and first six months 2009 included approximately $20 million in costs related to the reconfiguration of the Longview, Texas facility. The reconfiguration costs impacted the PCI and CASPI segments.

Read the The complete Report



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