Eastman Chemical's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Eastman Chemical (EMN)

Q1 2012 Earnings Call

April 27, 2012 8:00 am ET


Gregory A. Riddle - Director of Investor Relations

James P. Rogers - Chairman and Chief Executive Officer

Ronald C. Lindsay - Executive Vice President of Pci, Fibers, Engineering & Construction and Manufacturing Support

Curtis E. Espeland - Chief Financial Officer and Senior Vice President


Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Robert Koort - Goldman Sachs Group Inc., Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division

Jeffrey Stafford - Morningstar Inc., Research Division



Good day, everyone, and welcome to the Eastman Chemical Company first quarter 2012 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.

Gregory A. Riddle

Okay. Thank you, Jenny, and good morning, everyone and thanks for joining us. On the call with me today are Jim Rogers, Chairman and CEO; Curt Espeland, Senior Vice President and CFO; Ron Lindsay, Executive Vice President, PCI Fibers; and Fernando Subijana, Manager, Investor Relations.

Before we begin, I'll cover 2 items. First, during this call, you will hear certain forward-looking statements concerning our plans and expectations for full year 2012 and 2013, as well as the acquisition of Solutia. 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 2012 financial results news release and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full year 2011 and the Form 10-Q to be filed for first quarter 2012.

Second, certain Eastman financial measures referenced in this presentation are non-GAAP financial measures, such as earnings per share and operating earnings and excludes transaction and financing costs related to the pending acquisition of Solutia and another postretirement plan gain. Also referenced, our cash from operations excluding capital expenditures and dividend. A reconciliation to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the transaction of financing cost related to the pending acquisition of Solutia and other postretirement plan gain, are available on our first quarter financial results news release and the tables accompanying the news release available at www.investors.eastman.com

Lastly, we have posted slides that accompany our remarks for this morning's call on our website, again at www.investors.eastman.com, and they're located in the Presentations and Events section. With that, I'll turn the call over to Jim.

James P. Rogers

Thanks, Greg, and good morning, everyone. And you'd hopefully noticed Greg mentioned that Ron Lindsay is on the call with us this morning. Ron is one of 2 EVPs here along with Mark Costa. Ron has Fibers and PCI and I imagine many of you have met Ron, and I'm pleased to have him on the call. Just to show that I'm a very generous CEO, he has a bit of good news and rather than me saying it, I'm going to let Ron say it because it was his team that worked on it. Plus I'm guessing there may just be 1 or 2 questions on cracker spreads, et cetera, so Ron's probably the right man to have with us here on the call.

As I normally do, I'll start with an update on our most recent outlook statements. Back in January, we said we expected first quarter 2012 earnings per share to be between $1.05 and $1.15. This guidance was given prior to the implementation of a pension accounting change we announced in March, and Curt will have more on that in his remarks. With the pension accounting changed, we reported first quarter EPS of $1.22, which is on a comparable basis, it's near the top of our range. We also said that we expect to make progress this year on a number of organic growth initiatives, and you will hear this morning that we have completed several capacity expansions recently, and our Perennial Wood product is on the shelves in 50 Lowe's stores.

In addition, we said we expect to close the Solutia acquisition by midyear 2012, and we remain on track to do just that. And we guided full year 2012 EPS to be approximately $5 and that the pension accounting change would add approximately $0.30 per share, so we are confirming our full year EPS guidance, and I'll talk more about that in a few minutes.

Moving to Slide 4. As I mentioned, last night we reported EPS of $1.22. Revenue increased 4%, primarily reflecting higher selling prices. Operating earnings declined year-over-year in each of the segments, except Fibers, and we increased our spending in Other as we continue to fund organic growth initiatives such as Perennial Wood. Sequentially, operating earnings increased by almost $100 million, reflecting a nice bounce back from the challenging fourth quarter business environment and seasonally stronger sales volume, which increased 8% sequentially.

Now to the segments, starting with CASPI on Slide 5. CASPI began 2012 with a strong quarter. Operating earnings were $98 million, down somewhat from first quarter '11 as there were some pre-buying in the polymers product lines in the year ago quarter, but up about $40 million from the fourth quarter, helped by seasonally higher sales volume, which increased 12% sequentially. Looking at our expectations for full year 2012, all of CASPI's main product lines are operating at high levels. They're also benefiting from the Regalite hydrocarbon resin expansion completed during fourth quarter 2011.

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