Eastman Chemical To Be Aided By Cost Actions, Acquisitions
Zacks Investment Research | Jun 06, 2018 03:08AM ET
We issued an updated research report on Eastman Chemical Company (NYSE:EMN) on Jun 5.
Eastman Chemical’s shares have moved up 32.5% over a year, substantially outperforming 10.4% growth of the industry it belongs to.
Eastman Chemical’s high margin products and its aggressive cost management actions are likely to boost its earnings. Eastman Chemical saw higher profits in the first quarter, aided by strong growth in its specialty businesses and cost-control actions.
The company, in April, raised its earnings growth expectations for 2018 based on strong first-quarter results. It now expects adjusted earnings per share growth for 2018 to be 10-14% year over year, up from its prior view of 8-12%.
The company is focused on cost-cutting and productivity actions and increasing selling prices of its products, which are helping it to offset raw material cost inflation and other cost headwinds. It expects to realize $100 million of cost savings in 2018 under its cost-reduction program.
Eastman Chemical is also expected to gain from strategic acquisitions, especially of Taminco Corporation. The buyout has strengthened the company’s foothold in promising niche end-markets including food, feed and agriculture. The acquisition has also provided attractive cost- and revenue-synergy opportunities.
Further, the company is committed to reduce debt and boost shareholder returns leveraging strong free cash flow. The company repaid $350 million of debt last year. Moreover, it returned more than $180 million to shareholders during the first quarter of 2018 leveraging healthy free cash flow. Eastman Chemical expects to deliver strong earnings growth and generate solid free cash flow of more than $1.1 billion in 2018.
However, the company is exposed to volatility in ethylene prices which is weighing on its margins. Eastman Chemical is seeing a spike in raw material costs, which is anticipated to persist in the second quarter of 2018. The company expects raw material and energy prices, especially for olefins, to be volatile through 2018.
The company also faces cost headwinds associated with maintenance turnaround and start-up of new production facilities in 2018. It expects higher schedule maintenance cost in 2018.
Eastman Chemical Company Price and Consensus
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