Eastman Chemical Company Q1 2010 Earnings Call Transcript

Eastman Chemical Company Q1 2010 Earnings Call Transcript
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Eastman Chemical Company (EMN)

Q1 2010 Earnings Call

April 23, 2010 8:00 am ET

Executives

Greg Riddle – IR

Jim Rogers – President & CEO

Curt Espeland – SVP and CFO

Analysts

Kevin McCarthy – Bank of America/Merrill Lynch

Jason Miner – Deutsche Bank

P.J. Juvekar – Citigroup

Jeff Zekauskas – JP Morgan

Sergey Vasnetsov – Barclays

Frank Mitsch – BB&T Capital Markets

Andrew Feinman – Iridian Asset Management

Amy Zhang – Goldman Sachs

P

resentation

Operator

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Welcome to the Eastman Chemical Company first quarter 2010 earnings conference call. Today’s conference is being recorded. This call is being broadcast live on the Eastman’s website,

www.eastman.com

We will now turn the call over to Mr. Greg Riddle of Eastman Chemical Company Investor Relations. Please go ahead, sir.

Greg Riddle

Okay, thank you and good morning everyone. Thank you for joining us. On the call with me today are Jim Rogers, President and CEO, and Curt Espeland, Senior Vice President and Chief Financial Officer.

Before we begin I will cover three items. First, during this call you will hear certain forward looking statements concerning our plans and expectations for second quarter and full-year 2010. Actual results could differ materially from our plans and expectations. Certain factors related to future expectations are or will be detailed in the Company’s first quarter 2010 financial results news release on our website and in our filings with the Securities and Exchange Commission, including a form 10-K filed for 2009 and form 10-Q to be filed for first quarter 2010.

Second, except when otherwise indicated, operating earnings, earnings per share and cash flows from operating activities referenced in the call and in the slides accompanying the call exclude restructuring charges and the impact of the adoption of amended accounting guidance for transfers of financial assets. A reconciliation to the most directly comparable GAAP financial measures and other associated disclosures including a description of the restructuring charges and the impact of adoption of amended accounting guidance for transfers of financial assets available in our first quarter 2010 financial results news release and the tables accompanying the news release.

Lastly, we have posted the slides accompanying our remarks for this morning’s call on our website at

www.investors.eastman.com

. You will find them in the “Presentations and Events” section. With that I will turn the call over to Jim.

Jim Rogers

Thanks, Greg and good morning everyone. Thanks for joining us. I am going to begin on slide 3. Beginning with an update on some of the outlook statements we made on the call back in January.

For first quarter EPS we told we expected to be slightly above the $1.14 we reported in the fourth quarter and since then we had an outage at our Longview, Texas site which negatively impacted our results. We were able to more than offset the impact of the outage with strong volumes, improved mix and a strong March. I will talk more about the quarter in a minute.

Next we told you we projected our full-year 2010 EPS to be 20% higher than our 2009 EPS of $3.63. I will talk more about our expectations for 2010 EPS when I get to the outlook but given our strong start in our first quarter we expect to be well above this projection. We also told you we expect to generate more than $100 million of free cash flow in 2010. This is on top of the $320 million of free cash we generated in 2009. Although we used cash in the first quarter due to a working capital build which is reflective of our strong revenues, given our expectations for strong earnings performance we expect to more than meet this objective. Curt will walk you through this in more detail in his section.

We told you that we expected to recognize earnings from a acetyl license in the first half of 2010. This happened in March. This license along with the license we have with Chang Chun Petrochemical in Taiwan is a recognition of the value of our acetyl co-production technology. We have told you we expect to make progress on joint ventures and acquisitions in 2010. We have. In March we announced the completion of an acetate tow manufacturing plant in Korea the is owned by our joint venture with SK in which we have a controlling interest. Also in March we announced we entered into a definitive agreement to acquire Genovique Specialties Corporation which will strengthen our non-phthalate plasticizer business in the PCI segment.

Next is a review of our financial results for first quarter 2010. As I mentioned we were more than able to offset the impact of the outage at our Longview, Texas facility. Revenue increased 39% year-over-year. Volumes increased 22%. Part of the increase is a comparison to depressed demand in first quarter 2009 obviously but it also reflects the benefit of growth initiatives in areas like specialty plastics. Our operating margin increased to 12%, up substantially year-over-year and up 1% sequentially.

The increased earnings reflected the higher volumes, improved capacity utilization and the resulting lower unit costs and a positive shift in product mix. The net impact of both the acetyl license revenue and the outage at the Longview facility is about negative $0.15 per share; that is the net. I would also add we had good momentum in the quarter with March being our strongest month.

Turning to the segments, starting with fibers. What a great business. Fiber’s operating earnings in the quarter tied their quarterly record set in the third quarter 2009 and we have now set a record in four of the last five quarters. Revenue, volume and pricing were all similar to first quarter 2009 levels. Operating earnings increased due to the slight increase in prices in higher acetate yarn utilization and first quarter 2009 acetate yarn utilization was around 30%. In the first quarter 2010 it was in the mid 80’s.

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