Eastman Declares 2Q 2012 Results; Sees Slight Decline in CASE Business Sales Versus 2011
- Jul 31, 2012
KINGSPORT, Tenn. -- Eastman Chemical Company announced earnings from continuing operations of $1.40 per diluted share for second quarter 2012 versus $1.44 per diluted share for second quarter 2011, excluding $33 million of financing, transaction and integration costs in second quarter 2012 related to the acquisition of Solutia and a $15 million gain in second quarter 2011 from the sale of a previously impaired asset. Reported earnings from continuing operations were $1.26 per diluted share in second quarter 2012 and $1.51 per diluted share in second quarter 2011.
"This is an exciting time for Eastman with continued strong earnings performance throughout the company and the recent completion of the Solutia acquisition," said Jim Rogers, Chairman and CEO. "The integration of Solutia is well underway and our capture of cost synergies is on plan such that we are poised to deliver earnings growth and generate significant cash for years to come."
Operating earnings in second quarter 2012 were $317 million compared to $333 million in second quarter 2011. Excluding transaction and integration costs related to the Solutia acquisition in second quarter 2012 and a gain from the sale of a previously impaired asset in second quarter 2011, operating earnings were $323 million and $318 million, respectively.
Segment Results 2Q 2012 versus 2Q 2011
Coatings, Adhesives, Specialty Polymers and Inks - Sales revenue declined slightly in second quarter 2012 compared with second quarter 2011. Operating earnings in second quarter 2012 increased to $114 million compared with operating earnings of $104 million in second quarter 2011. The increase was primarily due to lower raw material and energy costs more than offsetting slightly lower selling prices.
Fibers - Sales revenue declined by 4 percent due to an unfavorable shift in product mix that was partially offset by higher selling prices. The unfavorable shift in product mix was primarily due to lower acetate tow volume in Asia Pacific attributed to customer buying patterns. The higher selling prices were in response to higher raw material and energy costs, particularly for wood pulp. Operating earnings in second quarter 2012 were $96 million compared with $97 million in second quarter 2011, with the slight decline due to the unfavorable shift in product mix mostly offset by higher selling prices.
Performance Chemicals and Intermediates - Sales revenue was unchanged in second quarter 2012 compared with second quarter 2011 as higher sales volume and a favorable shift in product mix were offset by lower selling prices. The higher sales volume and favorable shift in product mix were primarily due to increased sales volume for acetyl product lines in the U.S. and the favorable impact of the acquired Sterling and Scandiflex businesses. The lower selling prices, primarily in olefin derivative product lines, were in response to lower raw material and energy costs. Operating earnings in second quarter 2012 increased to $104 million compared to $94 million in second quarter 2011. The increase was due primarily to lower raw material and energy costs and the benefit of producing versus purchasing olefins, partially offset by lower selling prices.
Specialty Plastics - Sales revenue declined by 6 percent in second quarter 2012 compared to second quarter 2011 primarily due to lower sales volume partially offset by a favorable shift in product mix and higher selling prices. The decrease in sales volume, mainly in the U.S. and Europe, was attributed to weakened demand for copolyester product lines primarily in the consumer and durable goods markets. The favorable shift in product mix was due to higher sales volume into the LCD market for cellulosic product lines. Second-quarter 2012 operating earnings were $38 million compared to $42 million in second quarter 2011. The decline was primarily due to lower sales volume and resulting lower capacity utilization, which was partially offset by the favorable shift in product mix and higher selling prices.
Cash Flow and Financing
Eastman generated $316 million in cash from operating activities during second quarter 2012, primarily due to strong net earnings.
As part of the financing of the July 2, 2012 acquisition of Solutia Inc. and of repayment of certain Solutia borrowings, on June 5, 2012 Eastman received $2.3 billion net proceeds from the public offering of notes due 2017, 2022, and 2042 and on July 2, 2012 borrowed $1.2 billion under a five-year term loan agreement.
Solutia Acquisition and 2Q12 Results
On July 2, 2012 Eastman completed the acquisition of Solutia Inc. With the acquisition, the company made structural and reporting changes resulting in five reporting segments: Additives and Functional Products, Adhesives and Plasticizers, Advanced Materials, Fibers, and Specialty Fluids and Intermediates. The company will report third quarter 2012 financial results under the new reporting structure.
Sales revenue for Solutia in second quarter 2012 was $520 million, a 4 percent decline compared with second quarter 2011, due primarily to the strengthening of the U.S. dollar versus the euro. In addition, slightly higher sales volume in the Technical Specialties and Performance Films segments was more than offset by lower sales volume in the Advanced Interlayers segment. Net income was $31 million in second quarter 2012 including $15 million of acquisition related expenses, and $68 million in second quarter 2011 including $1 million of other charges. Adjusted EBITDA declined to $115 million in second quarter 2012 compared with $141 million in second quarter 2011. The decline in adjusted EBTIDA, primarily in the Advanced Interlayers segment, was mainly due to lower sales volume in Europe for Saflex® product lines, lower sales volume for photovoltaic encapsulants product lines, and costs of growth initiatives.
Commenting on the outlook for full year 2012, Rogers said: "Despite persistent global economic uncertainty, we continue to expect double-digit year-over-year earnings growth resulting from the solid performance of heritage Eastman businesses and second half earnings from the acquired Solutia businesses. As a result, our expectations for 2012 EPS of $5.30 remain unchanged." Costs and charges related to the Solutia acquisition, including financing, transaction, and integration costs, asset impairments and restructuring charges, net, and mark-to-market pension and OPEB adjustments are excluded from the earnings per share projection.
Eastman is a global specialty chemicals company that produces a broad range of advanced materials, additives and functional products, specialty chemicals, and fibers that are found in products people use every day. As a world leader in the diverse markets it serves, Eastman is focused on delivering innovative and technology-based solutions while maintaining its commitment to safety and sustainability. Serving customers in approximately 100 countries, Eastman had 2011 pro forma revenues, giving effect to the Solutia acquisition, of approximately $9.3 billion. The company is based in Kingsport, Tennessee, USA, and, with the completion of the Solutia acquisition, now employs approximately 13,500 people around the world.
This news release includes forward-looking statements concerning current expectations for global economic conditions; benefits, costs and charges, and integration of the Solutia acquisition and of the acquired Solutia businesses; cost reduction plans and efforts; asset impairments and restructuring charges and mark-to-market and OPEB adjustments; and company, segment, and acquired Solutia businesses earnings and cash flows in second half and full year 2012 and future years. 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 2012 available, and the Form 10-Q to be filed for second quarter 2012 and to be available, on the Eastman web site at www.eastman.com in the Investors, SEC information section.
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