Eastman Chemical (EMN) Misses Q2 Earnings & Sales Estimates

Eastman Chemical (NYSE:EMN) saw lower profits in the second quarter of 2016 as its sales declined on lower selling prices. The chemical maker recorded profit (as reported) of $255 million or $1.71 per share, a roughly 14% decline from $297 million or $1.98 per share recorded a year ago.

Barring one-time items, earnings were $1.68 per share for the quarter, down from $2.01 per share in the year ago-quarter. Earnings missed the Zacks Consensus Estimate of $1.71.

Revenues and Margins

Revenues fell around 9% year over year to $2,297 million in the quarter, missing the Zacks Consensus Estimate of $2,411 million. The decline was mainly due to lower prices, especially in the Chemical Intermediates unit.

Operating earnings (excluding one-time items) were $376 million in the quarter, down around 22% from $480 million a year ago due to declines across Chemical Intermediates and Fibers units.

Segment Review

Revenues from the Additives and Functional Products division went down 7% year over year to $770 million in the reported quarter. The decline was mainly due to lower selling prices as a result of reduced raw material and energy costs.

Revenues from the Advanced Materials unit were flat year over year at $646 million as higher sales volume of premium products was offset by lower selling prices due to reduced raw material and energy costs.

Chemical Intermediates sales dropped 15% to $633 million, hurt by lower selling prices resulting from the unfavorable impact of lower market prices for propylene, ethylene and methanol as well as sustained competitive pressure from weak demand in Asia Pacific.

Fibers segment sales tumbled 22% to $234 million due to reduced sales volume, (especially for acetate tow and acetate flake) and lower selling prices, in particular, for acetate tow.

Financials

Eastman Chemical ended the quarter with cash and cash equivalents of $240 million, down roughly 10% year over year. Total debt fell roughly 7% year over year to $6,804 million. Eastman Chemical generated operating cash flows of $494 million in the reported quarter.

Outlook

Eastman Chemical said that it is benefiting from strong growth of its specialty products and its cost-cutting actions. However, the company is seeing increased competitive pressure, especially from the Asia Pacific region, and compressing olefin spreads. As such, the company sees a decline in adjusted earnings per share for 2016 that approaches 10% below adjusted earnings per share for 2015 compared with its earlier expectation of a decline of roughly 5%.

Eastman Chemical currently has a Zacks Rank #3 (Hold).

Better-ranked stocks in the diversified chemicals space include Axiall Corp. (NYSE:AXLL) , Shin-Etsu Chemical Co., Ltd. (OTC:SHECY) and Stepan Co. (NYSE:SCL) , all sporting a Zacks Rank #1 (Strong Buy).

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