Eastman Announces Third-Quarter 2023 Financial Results

Eastman Chemical Company (NYSE:EMN) announced its third-quarter 2023 financial results.

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• Generated greater than $500 million cash from operating activities in the third quarter, underpinned by decisive actions to reduce inventories
• Modest sequential improvement in volume/mix in several key end markets, including consumer durables and personal care, despite a persistently weak demand environment
• On track to achieve full-year cost reductions of more than $200 million, net of inflation
• Remain on track to produce material and realize revenue from the Kingsport methanolysis facility around end of year

*For non-core and unusual items excluded from adjusted earnings and for adjusted provision for income taxes, segment adjusted EBIT margins, and net debt, reconciliations to reported company and segment earnings and total borrowings for all periods presented in this release, see Tables 3A, 3B, 4A, 4B, and 6.

"Our third-quarter results reflect decisive steps we took to aggressively reduce inventories and prioritize strong cash generation," said Mark Costa, Board Chair and CEO. "We delivered this strong cash flow against a backdrop of persistently weak demand and continued inventory destocking across several of our key end markets. We are encouraged to see modest improvements in demand across some markets, including consumer durables and personal care, but the pace of recovery has been slower than expected. We continue to focus on controllable actions, including maintaining cost discipline, defending the value of our products with resilient pricing, and managing working capital. These actions contribute to my confidence in the resiliency of our portfolio and sustainability of our strong cash flow going forward. We are also incredibly excited to be on track for producing material and realizing revenue from our Kingsport, Tennessee, methanolysis facility around the end of the year, further positioning Eastman as a leader in the circular economy."

Corporate Results 3Q 2023 versus 3Q 2022

Sales revenue decreased 16 percent due to 11 percent lower sales volume/mix and 5 percent lower selling prices.

Sales volume/mix was lower across most product lines due to the continuation of weak primary demand and continued customer inventory destocking across several end markets, including consumer durables, building and construction, agriculture, and medical. Lower selling prices in Chemical Intermediates and Additives & Functional Products more than offset higher selling prices in Fibers.

EBIT decreased due to lower sales volume/mix, lower capacity utilization to drive cash generation, increased pension expense, as well as an unfavorable impact from foreign currency. These factors were partially offset by lower variable costs more than offsetting lower selling prices and benefits from cost reduction actions.

Segment Results 3Q 2023 versus 3Q 2022

Advanced Materials – Sales revenue was down 16 percent due to 17 percent lower sales volume/mix.

While specialty plastics end-market demand improved compared to second quarter 2023, sales volume/mix was 26 percent lower compared to third quarter 2022 as the business recovers from weak demand and aggressive customer inventory destocking, particularly in the consumer durables, medical, and consumables end markets.

EBIT decreased due to lower sales volume/mix, significantly lower capacity utilization to drive cash generation, and an unfavorable impact from foreign currency. These factors were partially offset by the continued flow through of lower variable costs.

Additives & Functional Products – Sales revenue decreased 26 percent primarily due to 18 percent lower sales volume/mix and 9 percent lower selling prices.

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

EBIT decreased due to lower sales volume/mix and lower capacity utilization to drive cash generation, partially offset by lower variable costs more than offsetting lower selling prices.

Fibers – Sales revenue increased 29 percent primarily due to 28 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 19 percent lower selling prices and 2 percent lower sales volume/mix.

Lower selling prices and sales volume/mix, particularly for olefins, were primarily due to weak end-market demand.

EBIT decreased due to lower sales volume/mix, lower capacity utilization, and lower spreads.

Cash Flow

In third quarter 2023, cash provided by operating activities was $514 million compared to $256 million in third quarter 2022. The strong increase compared to the prior year period was primarily driven by a substantial reduction of inventories. In third quarter 2023, the company returned $94 million to stockholders through dividends. See Table 5. Priorities for uses of available cash for 2023 include organic growth investments, payment of the quarterly dividend, bolt-on acquisitions, share repurchases to offset dilution, and net debt reduction.

2023 Outlook

Commenting on the outlook for full-year 2023, Costa said: "Despite the continued challenging global economic environment, we were able to deliver on our earnings and cash flow expectations for the third quarter. This performance was the result of disciplined pricing across the portfolio, strong results in the Fibers segment, and decisive actions to generate strong cash flow. We also remain on track to reduce our cost structure by a total of $200 million for the year, net of inflation. As we enter the fourth quarter, demand remains muted as customers are cautious in the current challenging environment. We are also expecting normal seasonality in key end markets, including building and construction, consumer durables, and performance films automotive applications. And we will continue our decisive actions to generate cash. Taking this together, we expect 2023 EPS to be between $6.30 and $6.50, and for 2023 operating cash flow to approach $1.4 billion."

The full-year 2023 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 Oct. 27, 2023, 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 Oct. 26, 2023. To listen via telephone, the dial-in number is +1 (833) 470-1428, passcode: 945195. 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, Oct. 27, 2023, through 11:59 p.m. Eastern Time, Nov. 6, 2023, Toll Free at +1 (866) 813-9403, passcode 971032.

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 14,500 people around the world and serves customers in more than 100 countries. The company had 2022 revenue of approximately $10.6 billion and is headquartered in Kingsport, Tennessee, USA. For more information, visit www.eastman.com.

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