Eastman Chemical Company announced its third-quarter 2020 financial results.
|(In millions, except per share amounts)||3Q2020||3Q2019|
|Earnings before interest and taxes (“EBIT”)||243||367|
|Earnings per diluted share||1.18||1.93|
|Adjusted earnings per diluted share*||1.57||1.94|
|Net cash provided by operating activities||442||416|
|Free cash flow*||360||306|
*For non-core and unusual items excluded from adjusted earnings and for adjusted provision for income taxes, and calculation of free cash flow, net debt, and adjusted EBIT margins, and for reconciliations to reported company and segment earnings and to cash provided by operating activities and total borrowings, for all periods presented in this release, see Tables 3A, 3B, 4A, 4B, 5A, 5B, and 6.
“Demand across most of our end markets improved in the third quarter resulting in 10 percent higher sales revenue and almost 60 percent higher adjusted earnings sequentially,” said Mark Costa, Board Chair and CEO. “This performance continues to demonstrate the value of having a diverse set of end markets and the benefit of our innovation-driven growth model. We also are continuing to aggressively manage costs, enabling us to significantly mitigate the financial impact of COVID-19. Consistent with our focus on cash generation in this environment, our teams have done an excellent job of managing inventory. As a result, we have generated the highest free cash flow for the first nine months of a year in our history and are on track to generate greater than $1 billion of free cash flow for the fourth consecutive year.”
CorporateResults 3Q 2020 versus 3Q 2019
Sales revenue decreased primarily due to lower sales volume and lower selling prices. As overall economic conditions improved through the third quarter, sales volume recovered to 5 percent below 2019 levels. Sales volume for products serving end markets negatively impacted by the COVID-19 global pandemic, including transportation, building and construction, and consumer durables, increased significantly compared to second quarter 2020. Sales volume for products used in certain resilient end markets positively impacted by COVID-19, including consumables, personal care, and medical, moderated compared to a strong second quarter 2020. Lower selling prices were primarily due to lower raw material prices.
EBIT decreased due to lower sales volume, reduced capacity utilization, and less favorable product mix, partially offset by the impact of cost reduction actions. Capacity utilization was lower due to lower sales volume and the residual impact of aggressive inventory management in the second quarter, reducing EBIT by approximately $60 million year over year. As sales volume improved through the third quarter, the company increased capacity utilization across all available assets. Cost reduction actions, both structural and in response to COVID-19, included reduced discretionary spending, adjusted operations and deferred maintenance to protect the health and safety of employees and contractors, and supply chain optimization.
Segment Results3Q 2020 versus 3Q 2019
Additives & Functional Products – Sales revenue decreased primarily due to lower sales volume, lower selling prices, and less favorable product mix. The negative impact of COVID-19 on demand resulted in lower sales volume of products sold in transportation end markets, particularly aviation fluids and certain coatings additives. Lower selling prices were attributed primarily to increased competition in tire additives. Cost pass through contracts also contributed to lower selling prices.
EBIT decreased primarily due to lower sales volume, reduced capacity utilization, and less favorable product mix, primarily due to decreased sales of aviation fluids and certain coatings additives. These factors were partially offset by the impact of cost reduction actions.
Advanced Materials – Sales revenue decreased due to lower sales volume, less favorable product mix, and lower selling prices. Sales volume recovered to 2 percent below third quarter 2019 due to strong recovery in auto demand and our innovation and market development, particularly for product lines in Performance Films. Specialty Plastics also continued with strong and steady performance. Lower selling prices were attributed to lower raw material prices, particularly for paraxylene used in copolyester products.
EBIT decreased primarily due to reduced capacity utilization, less favorable product mix, and lower sales volume, partially offset by the impact of cost reduction actions.
Chemical Intermediates – Sales revenue decreased due to lower selling prices and lower sales volume across the segment. Lower selling prices were attributed to lower raw material prices. Lower sales volume was due to planned maintenance shutdowns and also attributed to the negative impact of COVID-19 on demand.
EBIT decreased slightly due to lower sales volume, lower capacity utilization, and lower selling prices, mostly offset by lower raw material costs. These factors were partially offset by the impact of cost reduction actions and $14 million of technology licensing earnings.
Fibers – Sales revenue benefited from stable acetate tow sales volume but declined due to lower textile products sales volume attributed to the impact of COVID-19 and lower acetate tow selling prices primarily due to previously negotiated multi-year contracts.
EBIT decreased primarily due to lower sales volume and reduced capacity utilization, partially offset by the impact of cost reduction actions.
In third quarter 2020, cash from operating activities was $442 million and free cash flow (cash from operating activities less net capital expenditures) was $360 million. See Tables 5A and 5B.
Priorities for uses of available cash for full year 2020 include payment of the quarterly dividend and the reduction of net debt (total borrowings less cash and cash equivalents) by more than $600 million. In third quarter 2020, the company returned $90 million to stockholders through dividends. In the first nine months of 2020, net debt decreased by $363 million. See Table 6.
Commenting on the outlook for 2020, Costa said: “With demand having improved throughout the third quarter and into October, we entered the fourth quarter with solid momentum. However, the resurgence of COVID-19 is increasing uncertainty in the global economic outlook, further limiting visibility for the back half of the fourth quarter. As a result, we remain focused on what we can control. The application of our innovation-driven growth model is enabling us to perform better than our recovering end markets, especially for certain product lines including performance films, specialty plastics, and architectural coatings. In addition, we are on track to deliver approximately $150 million of cost savings, net of inflation, for full year 2020, of which approximately $40 million is expected in the fourth quarter. Assuming that current economic conditions continue, we expect fourth-quarter 2020 adjusted EPS to be similar to fourth-quarter 2019 adjusted EPS of $1.42. And with our emphasis on cash in the current environment, our free cash flow through the first nine months of the year was a record and we remain on track to generate greater than $1 billion of free cash flow for the year. We expect to provide an update on our outlook prior to the end of the quarter.”
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