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Eastman Chemical Company Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 1, 2010 04:42PM
Eastman Chemical Company (EMN) filed Quarterly Report for the period ended 2010-09-30. Eastman Chemical Company has a market cap of $5.4 billion; its shares were traded at around $78.57 with a P/E ratio of 12.6 and P/S ratio of 1.1. The dividend yield of Eastman Chemical Company stocks is 2.3%. 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, Paul Tudor Jones of The Tudor Group, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors, Jeremy Grantham of GMO LLC, George Soros of Soros Fund Management LLC.
Highlight of Business Operations:
The Company generated sales revenue of $1.7 billion and $1.3 billion in third quarter 2010 and 2009, respectively and $5.0 billion and $3.7 billion in first nine months 2010 and 2009, respectively. Sales revenue increases for both third quarter and first nine months 2010 compared to comparable 2009 periods were due primarily to higher sales volume attributed to improved end-use demand in packaging, durable goods, and other markets in third quarter 2010 and the upturn in the global economy in first nine months 2010 as well as the positive impact of growth initiatives in both periods. Sales revenue increases were also due to higher selling prices in response to higher raw material and energy costs.
Operating earnings were $280 million in third quarter 2010 compared with $191 million in third quarter 2009, and $719 million in first nine months 2010 compared with $347 million in first nine months 2009. Operating earnings were negatively impacted by restructuring charges of $3 million in first nine months 2010 and $23 million in first nine months 2009. The increases in both comparable periods were 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 third quarter 2010 were also positively impacted by a partial settlement of an insurance claim of $22 million related to the first quarter 2010 power outage at the Company's Longview, Texas manufacturing facility, which was primarily reflected in the Performance Chemicals and Intermediates ("PCI") and Coatings, Adhesives, Specialty Polymers, and Inks ("CASPI") segments. In first nine months 2010, the Company received $32 million in insurance proceeds from partial settlement related to the outage. The Company expects any remaining insurance proceeds in fourth quarter 2010. First nine months 2010 operating earnings also included $12 million from acetyl license revenue. First nine months 2009 operating earnings included approximately $20 million in costs related to the reconfiguration of the Longview, Texas facility.
The Company generated $297 million in cash from operating activities during first nine months 2010 compared to $668 million generated in first nine months 2009. Excluding the $200 million impact of the adoption of amended accounting guidance described above in "Presentation of Non-GAAP Financial Measures", Eastman generated $497 million in cash from operating activities in first nine months 2010 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 greater than $300 million for full year 2010, assuming capital expenditures of approximately $225 million and U.S. defined benefit pension plan funding in an amount of $135 million, of which $100 million is expected to be contributed in fourth quarter 2010. Free cash flow is defined as cash from operating activities less capital expenditures and dividends.
The Company announced on October 23, 2010 that it has entered into a definitive agreement with DAK Americas, LLC, to sell the polyethylene terephthalate ("PET") business, related assets at the Columbia, South Carolina site, and technology of its Performance Polymers segment. The transaction is expected to close during fourth quarter of 2010. The sale, which is subject to regulatory approvals and satisfaction of other customary closing conditions, is not expected to impact product lines in the Specialty Plastics segment. The total cash proceeds of the transaction are expected to be $600 million before transaction fees and working capital adjustments at closing. In conjunction with the sale of the Performance Polymers PET business, the Company on October 23, 2010 approved a restructuring plan to reduce costs and will recognize severance restructuring charges in fourth quarter 2010 estimated to be between $20 and $25 million.
Gross profit in third quarter and first nine months 2010 increased compared to third quarter and first nine months 2009 in all segments. The increase in both comparable periods was due to higher sales volume and higher selling prices, as well as higher capacity utilization which led to lower unit costs in first nine months 2010. Gross profit in third quarter 2010 was positively impacted by $22 million from the partial settlement of the Longview, Texas insurance claim which was primarily reflected in the PCI and CASPI segments. In first nine months 2010, the Company received $32 million in insurance proceeds from partial settlement related to the outage. First nine months 2010 gross profit also included $12 million from acetyl license revenue. First nine months 2009 gross profit included approximately $20 million in costs related to the reconfiguration of the Longview, Texas facility. The reconfiguration costs impacted the PCI and CASPI segments.
In first nine months 2010, there were $3 million in restructuring charges primarily for severance associated with the acquisition and integration of Genovique. In first nine months 2009, restructuring charges were $23 million, net. The 2009 charges, primarily for severance, resulted from a reduction in force.
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