Eastman Announces Fourth-Quarter and Full-Year 2023 Financial Results

Eastman Chemical Company (NYSE:EMN) announced its fourth-quarter and full-year 2023 financial results.

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• Delivered approximately $1.4 billion of cash from operating activities in 2023, demonstrating the strength of our cash flow.
• Demonstrated commercial excellence in our pricing by leveraging the strength of our value proposition to offset significant macro-driven volume challenges.
• Reduced costs by approximately $200 million in 2023, net of inflation.
• Closed the previously announced divestiture of Texas City Operations for $490 million.
• Introduced plastic waste into the Kingsport methanolysis facility and expect to produce on spec material and to generate revenue soon.

"We delivered solid fourth-quarter results in a macroeconomic environment with weak primary demand due to seasonal declines and continued customer inventory destocking in some of our key end markets, including agriculture and medical," said Mark Costa, Board Chair and CEO. "Against this backdrop, we remained laser focused on cash generation and are incredibly proud to have generated approximately $1.4 billion of operating cash flow in 2023. In addition to our strong cash flow, we reduced costs by approximately $200 million in 2023, demonstrating our continued discipline. We enter 2024 on an upbeat note with the completed construction of our methanolysis facility in Kingsport, Tennessee. We just recently introduced plastic waste into the front end of the process and expect to produce on spec material and to generate revenue soon. We are building momentum as a leader in the circular economy, which adds to my confidence in the resilience of our earnings and cash flow going forward."

Corporate Results 4Q 2023 versus 4Q 2022

Sales revenue decreased 7 percent driven by 5 percent lower selling prices and 2 percent lower sales volume/mix.

Lower selling prices were due to lower raw material prices. Lower sales volume/mix was due to weak end-market demand and continued customer inventory destocking in some end markets, particularly agriculture and medical.

Reported EBIT increased due to a gain on the sale of our Texas City Operations. Adjusted EBIT increased to $222 million compared to $171 million in fourth quarter 2022. Price-cost increased due to the continued flow through of lower variable costs more than offsetting lower selling prices. The improvement in price-cost was partially offset by lower sales volume/mix, lower capacity utilization, higher pension expense, and increased SG&A expense due to higher variable compensation.

Segment Results 4Q 2023 versus 4Q 2022

Advanced Materials – Sales revenue decreased 4 percent due to 5 percent lower sales volume/mix.

Lower sales volume/mix was driven by continued weak end-market demand and destocking across key end markets, particularly medical, packaging, and building and construction, partially offset by continued strength in automotive.

EBIT increased due to commercial excellence in pricing and the continued flow through of substantially lower variable costs, which were elevated in the prior year period. This price-cost benefit was partially offset by lower capacity utilization, higher planned maintenance costs, and lower sales volume/mix.

Additives & Functional Products – Sales revenue decreased 15 percent due to 10 percent lower selling prices and 6 percent lower sales volume/mix.

Lower selling prices were primarily due to cost-pass-through contracts. Sales volume/mix was lower due to weak demand, especially in the building and construction end market and timing for some heat transfer fluid fills, as well as aggressive customer inventory destocking in the agriculture end market.

Decreased EBIT included lower sales volume/mix and lower capacity utilization, mostly offset by lower variable costs more than offsetting lower selling prices.

Fibers – Sales revenue increased 9 percent due to 13 percent higher selling prices, partially offset by 4 percent lower sales volume/mix.

Substantially higher selling prices for acetate tow were due to an increase in industry capacity utilization and higher raw material, energy, and distribution prices throughout 2022.

EBIT increased due to recovery of margins as higher selling prices returned EBIT margins to acceptable performance levels.

Chemical Intermediates – Sales revenue decreased 9 percent due to 16 percent lower selling prices, partially offset by 7 percent higher sales volume/mix.

Lower selling prices across the segment were primarily due to lower raw material prices and weak end-market demand.

Reported EBIT increased due to a gain on the sale of Texas City Operations. Adjusted EBIT was unchanged compared to the prior year period. Increased spreads were offset by lower sales volume/mix and lower capacity utilization.

Corporate Results 2023 versus 2022

Sales revenue decreased 13 percent due to 9 percent lower sales volume/mix, 2 percent unfavorable impact from divested businesses, and 2 percent lower selling prices.

Lower sales volume/mix was due to weak primary demand and significant customer inventory destocking across many of the company's key end markets, except for strength in transportation.

Reported EBIT increased due to a gain on the sale of Texas City Operations. Adjusted EBIT decreased primarily due to lower sales volume/mix and lower capacity utilization to drive cash generation, increased pension expense of approximately $110 million, increased SG&A expense due to higher variable compensation, continued investment in the circular platform, and an approximately $50 million unfavorable impact from foreign currency. These factors were partially offset by lower variable costs more than offsetting lower selling prices and the benefit from the company's cost reduction initiatives.

Segment Results 2023 versus 2022

Advanced Materials – Sales revenue decreased 9 percent primarily due to 11 percent lower sales volume/mix, partially offset by 3 percent higher selling prices.

Lower specialty plastics sales volume/mix was due to weak primary demand and significant customer inventory destocking across key end markets. Growth in the automotive market was driven by the success of high-value premium interlayers. Selling prices increased in advanced interlayers due to increased prices for raw materials in the prior year period.

EBIT decreased due to lower sales volume/mix and lower capacity utilization, partially offset by higher selling prices and the flow though of lower variable costs. EBIT included an approximately $35 million unfavorable impact from foreign currency.

Additives & Functional Products – Sales revenue decreased 18 percent due to 13 percent lower sales volume/mix and 5 percent lower selling prices.

Sales volume/mix was lower due to weak demand and significant customer inventory destocking in several key end markets, including building and construction and agriculture. Lower selling prices were primarily due to cost-pass-through contracts.

EBIT decreased due to lower sales volume/mix and lower capacity utilization, partially offset by favorable price-cost.

Fibers – Sales revenue increased 27 percent primarily due to 26 percent higher selling prices.

Substantially higher selling prices for acetate tow were due to an increase in industry capacity utilization and higher raw material, energy, and distribution prices throughout 2022.

EBIT increased due to recovery of margins as higher selling prices returned EBIT margins to acceptable performance levels.

Chemical Intermediates – Sales revenue decreased 21 percent due to 13 percent lower selling prices, and 8 percent lower sales volume/mix.

Lower selling prices across the segment were primarily due to lower raw material prices and weak end-market demand. Lower sales volume/mix was due to weak end-market demand and significant customer inventory destocking across several key end markets.

Reported EBIT increased due to a gain on the sale of Texas City Operations. Adjusted EBIT decreased compared to the prior year period due to lower sales volume/mix, lower capacity utilization, and lower spreads.

Cash Flow

In 2023, cash provided by operating activities was approximately $1.4 billion compared to approximately $1 billion in 2022. The strong increase compared to the prior year period was primarily driven by a reduction of working capital in 2023 compared to an increase in 2022. In 2023, the company returned $526 million to stockholders through dividends and share repurchases. See Table 5. Priorities for uses of available cash for 2024 include organic growth investments, payment of the quarterly dividend, bolt-on acquisitions, and share repurchases.

2024 Outlook

Commenting on the outlook for full-year 2024, Costa said: "As we begin 2024, the global economic environment remains uncertain. Despite this uncertainty, we are confident in our ability to generate growth across our portfolio for a number of reasons. First, we continue to expect volume growth due to the absence of customer inventory destocking in our end markets, except medical and agriculture, which continue to destock in the first quarter. And we expect modest primary demand growth in some stable end markets while discretionary end markets remain flat. Second, we expect to benefit from revenue and earnings generated by our Kingsport methanolysis facility. Third, we also expect improved asset utilization to be a benefit after aggressively managing inventory across the company in 2023. Finally, we expect these tailwinds to be partially offset by lower price-cost negatively impacting margins, primarily in Chemical Intermediates. And we will manage costs to offset inflation while continuing to invest in growth and capabilities for long-term value creation. Taking this together, we expect 2024 EPS to be between $7.25 - $8.00 and for 2024 cash from operations to be approximately $1.4 billion."

The full-year 2024 projected adjusted diluted EPS excludes any non-core, unusual, or nonrecurring items. Our financial results forecasts do not include non-core items (such as mark-to-market pension and other postretirement benefit gain or loss, and asset impairments and restructuring charges) or any unusual or non-recurring items because we are unable to predict with reasonable certainty the financial impact of such items. These items are uncertain and depend on various factors, and we are unable to reconcile projected adjusted diluted EPS excluding non-core and any unusual or non-recurring items to reported GAAP diluted EPS without unreasonable efforts.

Forward-Looking Statements

This information and other statements by the company may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings, revenues, volumes, pricing, margins, cost reductions, expenses, taxes, liquidity, capital expenditures, cash flow, dividends, share repurchases or other financial items, statements of management's plans, strategies and objectives for future operations, and statements regarding future economic, industry or market conditions or performance. Such projections and estimates are based upon certain preliminary information, internal estimates, and management assumptions, expectations, and plans. Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by any forward-looking statements. Forward-looking statements speak only as of the date they are made, and the company undertakes no obligation to update or revise any forward-looking statement. Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the Securities and Exchange Commission (the "SEC"), which are accessible on the SEC's website at www.sec.gov and the company's website at www.eastman.com.

Conference Call and Webcast Information

Eastman will host a conference call with industry analysts on Feb 2, 2024, at 8:00 a.m. ET. To listen to the live webcast of the conference call and view the accompanying slides and prepared remarks, go to investors.eastman.com, Events & Presentations. The slides and prepared remarks to be discussed during the call and webcast will be available at investors.eastman.com at approximately 4:30 p.m. ET on Feb 1, 2024. To listen via telephone, the dial-in number is +1 (833) 470-1428, passcode: 844307. A web replay, a replay in downloadable MP3 format, and the accompanying slides and prepared remarks will be available at investors.eastman.com, Events & Presentations. A telephone replay will be available continuously beginning at approximately 1:00 p.m. Eastern Time, Feb 2, 2024, through 11:59 p.m. Eastern Time, Feb. 12, 2024, Toll Free at +1 (866) 813-9403, passcode 209674.

Founded in 1920, Eastman is a global specialty materials company that produces a broad range of products found in items people use every day. With the purpose of enhancing the quality of life in a material way, Eastman works with customers to deliver innovative products and solutions while maintaining a commitment to safety and sustainability. The company's innovation-driven growth model takes advantage of world-class technology platforms, deep customer engagement, and differentiated application development to grow its leading positions in attractive end markets such as transportation, building and construction, and consumables. As a globally inclusive and diverse company, Eastman employs approximately 14,000 people around the world and serves customers in more than 100 countries. The company had 2023 revenue of approximately $9.2 billion and is headquartered in Kingsport, Tennessee, USA. For more information, visit www.eastman.com.

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